14 June 2001, 19:18  US wholesale prices edge up less-than-expected 0.1% in May (Wrap)

Washington, June 14 (BridgeNews) - U.S. wholesale prices edged up slightly in May, as rising tobacco and energy costs were largely offset by declines in the costs of food and vehicles, the Labor Department announced Thursday.
Analysts indicated the price report should not stand in the way of further interest rate cuts, if Federal Reserve policy makers choose to follow that route at their next meeting late this month. The producer price index rose 0.1% in May, the government reported. That was well below the 0.3% jump in April and a notch beneath market expectations. A 5.6% jump in the price of cigarettes was a primary source of inflation in the data. The increase reflects an attempt by cigarette manufacturers to offset legal costs related to the national tobacco settlement.
Excluding the cost of cigarettes, the producer price index actually fell 0.1% in May, the government said. Energy prices also underpinned the index, as heating oil costs surged 8.0%, the steepest climb since September. Gasoline costs rose 0.4%, and residential natural gas rose 0.2%. But food prices fell 0.4%, while the cost of passenger cars dropped 0.1%. Excluding food and energy costs, the producer price core rate was up 0.2%, matching the April increase and in line with expectations.
The monthly wholesale price report also showed that light truck prices dropped 1.6%, capital equipment prices were down 0.1% and prices for computers fell 1.0%. "The goods prices show no inflation, which means manufacturers are not able to pass on higher costs of labor or energy," said Mark Vitner, economist with First Union Capital Markets.
"The figures look pretty good, inflation is on the run...through the supply chain there is very little price pressure, as you would expect with a prolonged period of sluggish growth," Clearview Economics' Ken Mayland said. "Inflation in not 2001's problem." In other economic news Thursday, the Labor Department reported that initial jobless claims fell 12,000, to 428,000 for the week ended Saturday. However, the four-week moving average rose 9,000, to 424,500, the highest level since August 1992, as initial claims in the previous week were revised higher
Meanwhile, U.S. business inventories were unchanged in April and business sales dropped 0.5%--their third consecutive monthly decline, according to the Department of Commerce. Inventories at factories, wholesalers and retailers were roughly in line Wall Street forecasts of a 0.1% gain.

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