Ahead Of The Bell: Consumer Price Index

The Labor Department said Tuesday that wholesale prices dropped 5 percent in May from the previous year, the sharpest decline in 60 years.

Falling prices can raise fears about deflation, a destabilizing period of extended declines. But most analysts say efforts by the Federal Reserve to stimulate the economy will prevent that from occurring.

The Fed has pushed a key interest rate to a record low near zero and has taken a number of other measures to flood the banking system with cash to counter a severe credit crisis.

A group of economists from the nation's largest banks predicted Tuesday that prices will continue to fall this year. The American Bankers Association's Economic Advisory Committee projects that core consumer prices will decline at a 1 percent annual rate by the end of 2009.

But Bruce Kasman, chief economist for JPMorgan Chase & Co. and chairman of the committee, said inflation is a greater risk than deflation over the next several years, due to huge budget deficits topping $1 trillion this year and next.

There are concerns about deflation in other parts of the world, especially in Japan, where prices have been falling. That country underwent a destabilizing bout of deflation during the 1990s, when the world's second largest economy struggled to emerge from a real estate and banking crisis.