Lower energy and food costs offset higher car and book costs

WASHINGTON - Wholesale prices showed no change in May as lower costs for energy and food more than offset higher prices for cars and a record jump in the cost of books, according to government figures released Friday.

The flat reading in the Labor Department's Producer Price Index, which measures inflation pressures before they reach consumers, surprised analysts who had predicted that a rebound in energy costs would push up wholesale prices by 0.3 percent.

''I don't see a lot of serious inflation in this report,'' said Donald Ratajczak, director of Georgia State University's economic forecasting project.

Outside the volatile energy and food categories, the ''core'' rate of inflation at the wholesale level rose 0.2 percent last month, slightly faster than many analysts were forecasting. In March and April, core prices rose by just 0.1 percent.

Economists offered conflicting opinions as to whether the uptick in May's core rate was a worrisome harbinger of future inflation dangers.

''This adds a new element of concern about inflation because a preponderance of items saw prices increasing,'' said Paul Kasriel, economist with the Northern Trust Co.

But Merrill Lynch economist Stan Shipley said that excluding the rise in car prices, the core CPI rose 0.1 percent, matching many analysts' expectations. ''There is no significant inflationary pressure,'' he said.

The Federal Reserve has raised interest rates six times since last June, including an aggressive half-point increase in May to slow the economy and keep inflation from becoming a problem.

Some recent economic reports, including home sales, factory orders and unemployment, have offered signs that the economy may be slowing a bit. Against this backdrop, economists have offered mixed opinions on whether Fed policy-makers will nudge up rates for a seventh time when they meet June 27 and 28.

Some economists believed Friday's PPI report reduced the odds of another rate increase later this month. Others said next week's report on inflation at the consumer level in May may help settle that debate.

On Wall Street, stocks ended the day mixed after the tame inflation report failed to calm investors' fears that the Fed will again raise interest rates to force a slowdown in the economy. The Dow Jones industrial average fell 54.66 points to close at 10,614.06. The Nasdaq rose 49.28 points to 3,874.84.

So far this year, wholesale prices have been rising at an annual rate of 4.3 percent, compared with a 3 percent gain for all of 1999. The pickup in this year's wholesale prices largely reflects rising energy costs.

In April, however, wholesale prices fell for the first time in 14 months as energy costs plunged 4.1 percent.

And, in May, energy prices - contrary to most analysts' expectations - declined 0.5 percent.

Ratajczak didn't believed the report captured price increases - particularly those involving gasoline - occurring late in the month. As a result, June's PPI report will likely show a sizable increase in energy prices, he said.

The decline in May's energy prices was led by a 12.1 percent drop in the costs of liquefied petroleum gas, such as propane. That was sharpest decrease since January. Residential electric power fell 0.5 percent, the largest decline in almost a year.

Those price decreases more than offset rising prices for gasoline and residential natural gas, which each went up by 1.3 percent in May. Home heating oil rose 2.5 percent.

Food prices in May fell 0.2 percent, after a sharp 1 percent increase the month before. Falling prices for eggs, pork and chicken outweighed rising prices for fruits, vegetables and beef.

Car prices rose 0.9 percent in May, the largest gain since September, and light truck prices went up 0.4 percent.

Paul Taylor, chief economist for the National Automobile Dealers Association, said the increase reflected strong demand and higher wage costs stemming from increased overtime work.

Book prices jumped a record 2.4 percent, surpassing the previous record increase of 1.6 percent in June 1995. And, sanitary paper products, such as napkins and toilet paper, rose 2.8 percent, the biggest increase since October 1989. Economists said rising paper costs are to blame.

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On the Net: the PPI report: http://stats.bls.gov/ppihome.htm