WASHINGTON (AP) ¿ Government data are expected to show that wholesale inflation increased in May by the most since January, largely due to higher gas prices. But the increase is unlikely to cause concern that inflation will rise too rapidly. With unemployment at a 25-year high and the economy mired in recession, companies have little ability to raise prices and workers aren't able to demand higher pay. That is expected to keep overall price levels in check through this year and perhaps longer. Wall Street economists expect the Producer Price Index rose 0.6 percent in May, after a 0.3 percent gain in April, according to Thomson Reuters. The PPI measures price pressures before they reach consumers. The Labor Department is scheduled to release the report Tuesday at 8:30 a.m. EDT. Most of the increase likely was due to higher gas prices, which jumped about 20 percent in May. Pump prices reached about $2.50 a gallon by the end of the month, as oil prices rose on hopes that a potential economic recovery could revive demand.
Excluding volatile energy and food prices, core wholesale inflation is expected to have increased 0.1 percent in May. Economists expect overall wholesale prices will plummet 4.4 percent from last year, compared with the 3.7 percent annual drop recorded in April. That was the steepest yearly fall since 1950. Much of that drop reflects the fact that oil and gas prices were even higher at this time last year, with oil nearing $130 a barrel. Oil is now about half that level, just below $70 a barrel, despite its recent increases. Gas topped $4 a gallon at the pump last summer. Excluding food and energy, the core producer price index is expected to increase 3.2 percent in the year ending in May. Companies aren't passing on all the higher costs, helping to keep consumer inflation in check. The core Consumer Price Index, to be released Wednesday, is expected to show a 1.8 percent gain in the past year, much lower than the wholesale inflation figure. The CPI is expected to increase 0.3 percent in May from the previous month, after a flat reading in April. The core CPI is forecast to rise 0.1 percent.
Both wholesale and consumer prices have fallen from a year ago, which has led some economists to worry about deflation, a destabilizing period of falling prices. The U.S. has not seen a bout of deflation since the Great Depression. But most economists believe the Federal Reserve's efforts to revive the economy and combat the financial crisis will prevent deflation from occurring. The Fed has cut a key interest rate to a record low near zero and taken a number of other extraordinary measures to flood the banking system with cash. But there are concerns about deflation in other parts of the world, especially in Japan. That country underwent a destabilizing bout of deflation during the 1990s, a period when the world's second largest economy struggled to emerge from a real estate and banking crisis. Price declines have also been registered in other major Asian economies including China and India. Many economists don't expect the Fed to raise interest rates until the unemployment rate stops rising. It shot up to a 25-year high of 9.4 percent in May and many forecasters believe the jobless rate will top 10 percent by year's end.
More layoffs have been announced in the past week. Cessna Aircraft Co., the nation's largest builder of corporate jets, said Friday it will cut 1,300 jobs by August, on top of 6,900 layoffs that it previously announced. The company, a unit of Providence, R.I.-based Textron Inc., has reduced its work force by half since November. In addition, Zimmer Holdings Inc., an orthopedics manufacturer based in Warsaw, Ind., said Friday that it will lay off 100 employees.