Steady wholesale prices ease inflation fears Producer index is flat for May


WASHINGTON -- Wholesale prices remained flat in May, calming fears that inflationary pressures are building in the economy and easing expectations that the Federal Reserve might feel compelled to raise interest rates to keep prices in check.

With both food and energy wholesale costs subsiding after big advances earlier this year, the Labor Department's Producer Price Index -- which measures inflationary pressures before they reach the consumer -- was unchanged in May. The respite followed a 0.6 percent rise in April, the biggest monthly gain in 2 1/2 years, and a steep 0.4 percent increase in March.

The moderation came as consumers turned more tightfisted in May. The Commerce Department reported that sales at retail stores rose only 0.1 percent in May following a revised 1.5 percent jump in April.

Many economists had forecast that pent-up demand would boost retail sales by as much as 1.3 percent in May following a harsh late winter that had slowed customer traffic in the stores.

But the absence of any fresh sign of resurgent inflation was enough to buoy financial markets and provide some relief for President Clinton, who has been touting the country's low interest rates as a sign that his economic programs are working.

The surprisingly sharp price rise in April had caused concern that inflation could be making an unexpected comeback, and some analysts feared that yesterday's wholesale price report would confirm the trend and force the Fed to raise rates.

The president met with Federal Reserve Chairman Alan Greenspan Wednesday night for an hourlong discussion that the White House described as an overall review of Mr. Clinton's economic program.

"The upward pressure in prices earlier this year, I think, had been alarming to the administration, but now the president has a little more breathing room," said David Cross, an analyst at the WEFA Group, an economic consulting firm in Bala Cynwyd, Pa.

On Wall Street, blue-chip stocks rose and the bond market advanced strongly. The yield on the Treasury's 30-year benchmark bond slipped to 6.8 percent from 6.87 percent Thursday.

On the retail sales front, automobile sales advanced 0.4 percent after soaring 2.1 percent in April, and purchases at building material, hardware and garden-supply stores remained strong.

But stores selling furniture, appliances and other household furnishings reported that sales fell 0.9 percent, nearly wiping out the previous month's 1 percent gain.

"These numbers can be pretty volatile," said Campbell Harvey, associate professor of finance at the Fuqua School of Business at Duke University. "But I think consumers are telling us they are not confident that the economic recovery can hold up."

Other data, however, has suggested the economy is stronger than previously believed.

The May employment report released earlier this month, for example, showed an unexpected drop in the jobless rate -- to 6.9 percent from 7.0 percent -- as well as a jump in payroll jobs.

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