WASHINGTON, June 14: Inflation appeared in check last month based on a key indicator of US prices at the wholesale level, while retail sales fell sharply, according to reports released Tuesday. The Commerce Department said US producer prices fell 0.6 per cent in May. Excluding food and energy costs, the so-called core producer price index (PPI) rose 0.1 per cent, which still suggests modest inflationary pressures.

A separate report showed US retail sales slid 0.5 per cent in May, the steepest since June 2004.

Excluding auto sales, retail sales fell 0.2 per cent.

Both reports suggested softening economic conditions, reversing a trend in April.

But analysts cautioned that one month’s data do not necessarily indicate a trend, and that a report on Wednesday on consumer inflation will be closely watched.

“Apparently, this was the May of the economy’s discontent,” said Joel Naroff of Naroff Economics.

“Everything turned negative after soaring in April. Whether it was jobs, consumer spending or prices, the data turned on a dime. So maybe we should just sit back and relax a bit. The trend is not well defined other than to say it is up, no down, no flat.”

A major factor skewing the retail sales report was gasoline prices, which fell sharply in May. Service stations saw a 1.6 per cent drop in sales in May after a 2.2 per cent rise in April — a reflection of lower prices in May.

Some analysts said the tame inflation report is more significant, because it could convince the Federal Reserve to go slow or even pause in its policy of steady interest rate increases.

The PPI suggests a 1.8 per cent annual rate of increase over the past four months, said Dick Green at Briefing.com.

“This very modest trend suggests that underlying inflation at the producer level is well contained — far more so than most market participants had assumed earlier this year, when the silly ‘stagflation’ talk emerged,” Green said.

On retail sales, Green said, “The overall trend in consumer spending is of slightly slower growth than in 2004, but still enough to produce 3.0 per cent or higher real GDP growth this year.”—AFP