Wholesale inflation fell for the second straight month in May, the Labor Department said Friday, but the good news was tempered by an unexpected jump in the core component of the price index.
The department said its producer price index fell 0.1 percent, matching April’s rate. But excluding volatile food and energy prices, the index advanced by a surprising 0.4 percent.
The increase in the core rate followed a 0.1 percent rise in April and was the biggest jump since January.
“On the surface, producer prices show little to worry about, but if you cut through the surface to the core rate, you find an unacceptably high rate of price increases,” said Eugene Sherman, of M.A. Schapiro and Co. Inc., a New York brokerage firm that specializes in bank securities.
The department said the inflation picture benefited from a 1 percent decline in energy, coupled with a 0.9 percent drop in overall food costs.
The core rate, however, reflected a 1.9 percent increase in tobacco prices as well as an 0.8 percent rise in automobile prices.
The rise in autos, which came after a 0.3 percent April advance, suggested that the economic expansion finally may be showing some inflationary pressures as demand picks up.
But other economists said the rise was not strong enough to set off warning flags.
The Federal Reserve already has raised short-term interest rates four times this year.
David Jones, of Aubrey G. Lanston, a New York bond trading firm, said the price index numbers “were consistent with a favorable inflation picture.”
Jay Goldinger, of Capital Insight, said: “I don’t think volatile tobacco prices are enough to fire up the Fed to raise rates again.”
Blue Chip Economic Indicators, a newsletter based in Sedona, Ariz., reported Friday that a consensus forecast of 52 prominent analysts sees consumer prices rising 2.7 percent this year, unchanged from the 1993 inflation rate. Price hikes in 1993 were the smallest since costs edged up 1.1 percent in 1986, which was the best performance since a 1 percent gain in the consumer price index in 1964.
