NEW YORK (CNNfn) - Wholesale prices rose for the second straight month in the United States in May, the government said Thursday, but the inflation pressure on the world's largest economy was softer than analysts expected.
The Producer Price Index rose 0.1 percent last month after April's 0.3 percent rise, the Labor Department reported. Wall Street economists surveyed by Briefing.com had forecast that the PPI would rise 0.3 percent.
Excluding often volatile food and energy prices, the so-called "core index" rose 0.2 percent, matching forecasts. The core PPI rose 0.2 percent in March.
The Federal Reserve, charged with keeping a lid on inflation while trying to keep money flowing through the economy, has said it is less worried about inflation than about boosting the sluggish economy. Analysts said Thursday's PPI data supported that view.
"PPI was better than expected, certainly on the overall number, and confirms the Fed's recent statements that inflation remains a secondary concern behind the weakness in the economy," said Paul Christopher, economist with A.G. Edwards & sons.
Stock prices fell on Wall Street, pressured by concerns that the planned $41 billion merger between Dow components General Electric Co. (GE: up $1.45 to $49.30, Research, Estimates) and Honeywell International Inc. (HON: down $3.36 to $38.90, Research, Estimates) was falling apart.
Energy prices continue to rise
The Labor Department is expected to release its Consumer Price Index, which tracks retail prices, on Friday. In recent years, the CPI has been little affected by the PPI, as increased competition and other factors have mostly kept retailers from passing costs to their customers.
Energy prices continued to swell, rising 0.2 percent after a 0.1-percent increase in April, with heating oil and residential electric power costs leading the way. However, food prices fell for the first time in five months, by 0.4 percent.
Analysts were also heartened by the core PPI data, which rose mostly on the basis of a 5.6-percent increase in cigarette prices, which added about 0.3 percent to the core PPI number.
"This strongly suggests that core finished goods' prices will slow over the next few months," said Ian Shepherdson, chief U.S. economist with High Frequency Economics Ltd.
Jobless claims, inventories drop
In a separate report, the Labor Department said the number of new U.S. claims for state unemployment benefits fell to 428,000 last week from 440,000 the prior week, but the four-week moving average of new claims, considered a better gauge of jobless trends, rose to the highest level since Aug. 8, 1992.
A slowdown in the U.S. economy has forced businesses to cut thousands of jobs, and the Fed has cut interest rates five times this year to keep consumers spending and avoid a recession.
Meanwhile, the Commerce Department said inventories at U.S. businesses held steady in April as sales dipped for a second straight month.
While sales fell 0.5 percent in April to $833.8 billion, inventory levels remained unchanged, at $1.20 trillion, Commerce said. Economists polled by Briefing.com expected inventories to stay the same.
If companies can unload their backlog of goods, they may be able to increase production in the near future -- and possibly bring some relief to the labor market.