Inflationary pressures eased in May. The producer price index fell a sharp 0.6% with about three-quarters of the drop due to the sharpest decline in energy prices in two years, the Labor Department reported Tuesday. Economists said the Fed would welcome the benign inflation reading, but said other concerns, such as rising wages, would keep the central bank on the path of gradual rate hikes. The decline in the PPI in May was the biggest one-month decline since a 1.5% drop in April 2003. Excluding food and energy costs, the core PPI rose 0.1%. The magnitude of the decline in the May PPI was unexpected and the gain in the core rate was below forecasts. Wall Street economists had forecast the index would fall 0.2%, while core prices were expected to increase 0.2%, according to a survey conducted by MarketWatch. Over the past year, the PPI has risen 3.5%, the smallest year-over-year increase since last September. "Overall, core PPI inflation is now peaking. But the real inflation threat is the labor market, not goods prices, and good PPI numbers will not sway the Fed," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. Fed watchers are almost unanimous in their view that the Fed will hike rates by a quarter percentage point to 3.25% on June 29-30.