By Neil Irwin
Washington Post Staff Writer
Wednesday, June 16, 2010; 9:34 AM
Wholesale prices declined in May as the European debt crisis led food and energy prices to drop sharply, the government said Wednesday. The data indicated that troubles in the global economy are creating downward pressure on inflation.
The producer price index declined 0.3 percent, the Labor Department said, a steeper drop than expected. But the decline was almost entirely due to a 1.5 percent drop in energy prices and an 0.6 percent drop in the price of food during the month.
Excluding the volatile food and energy sectors, producer prices were up 0.2 percent. That suggests that the underlying trend in the U.S. economy, once swings in commodity prices are excluded, continues to be one of low inflation but not deflation (deflation is a cycle of falling prices).
The index measures inflation in goods purchased by businesses, and can be a forward-looking measure of price pressures affecting consumers.
Over the past year, the producer price index is up 5.3 percent, the Labor Department said, again because of a rebound in fuel prices. When food and energy are excluded, the index is up 1.3 percent for the year ended in May.
The price of oil and other commodities fell steeply in May, as fears spread that Greece and other European nations might be unable to handle their debts. Those default fears, which also led to drops in the stock market, drove the price of crude oil down as investors assumed that global demand will be softened by troubles in Europe.