Washington, DC, June 17--Wholesale prices climbed at the fastest pace in 14 months in May as food prices accelerated, indicating the global economic recovery is fueling inflation.
The producer-price index for finished goods rose 0.8% last month, marking the biggest increase since March 2003, the Labor Department said Thursday. The surge partly reflected higher food prices, which account for 21% of the index. But the closely watched "core" index -- which excludes food and energy items -- also rose, climbing 0.3%. That marked the fastest pace in four months.
Economists surveyed by Dow Jones Newswires and CNBC had called for a 0.6% increase in the overall index and a 0.2% gain in core prices. But the report was consistent with other recent measures of inflation, which have shown prices rising steadily.
Economists say the PPI, which reflects prices paid by factories, mines and utilities, can foreshadow changes in consumer prices about six months down the road. Investors pay close attention as a result. But Fed policy makers have said they expect consumer prices to remain mild this year, giving them the freedom to raise interest rates at a gradual pace.
"Our general view is that inflationary pressures are not likely to be a serious concern in the period ahead," Fed Chairman Alan Greenspan told U.S. lawmakers on Tuesday. Still, he said, if that expectation proves to be wrong, the central bank is prepared to raise interest rates as much as necessary to control inflation.
The Fed's key interest rate now stands at 1%, a 46-year low. Wall Street expects the central bank to raise it for the first time in four years at the next Fed meeting on June 29 and June 30. By December, analysts say, the Fed is likely to have raised the rate five times, taking it up to 2.25%.
In its report Thursday, the department said producer prices for finished goods rose across the board. Food prices climbed 1.5%, up from 1.4% in April. Energy prices rose 1.6%, the same as in April. Gasoline prices climbed 5.7%, the largest gain since January.
Prices of capital equipment rose 0.3% after holding steady in April. Passenger-car prices rose 1.1%, the biggest gain since March 2003. Prices of light motor trucks -- which include sport utility vehicles -- also rose 1.1%, the biggest increase in seven months. But cigarette prices fell 0.7%, marking the biggest drop in a year.
Overall inflationary pressures intensified in annual terms. In the 12 months that ended May, producer prices were up 5%, faster than at any time since the end of 1990. But the core index was up just 1.7% in annual terms, compared with a 1.4% gain in April.
Inflationary pressures ebbed further up the production pipeline. Prices of crude, or unprocessed goods, rose 2.8% in May after a 3% increase in April. Prices of intermediate goods rose 1.1%, slowing from a 1.4% rate in April.
