Producer prices in United States jumped by more than expected in May pushed higher by the soaring fuel and food prices, according to the latest release from the US Labor Department.
Prices climbed by 1.4% (energy 4.9%), the biggest gain since November 2007, confirming the inflation challenge the world's leading economy is facing. Further evidence of the strain on the US economy came from separate government numbers showing a 3.3% fall in new home construction during May. The housing market has slowed over the past year, weighing on economic growth. As a result the US Federal Reserve, now expects growth of between 0.3% and 1.2% this year, down from the 1.3% to 2% predicted in February. Yet despite expectations of slower growth, fears remain over higher consumer prices, especially with oil prices setting new record highs of almost 140 US dollars a barrel. The increase in producer prices surprised many analysts, who had forecast a rise of about 1%. But stripping out fuel and food, core producer prices rose by 0.2%, in line with analysts' forecasts. This gave some analysts reason to be upbeat. All eyes are now set on the Federal Reserve meeting next week with analysts divided about the bank's decision, whether they will keep interest rates at their current level of 2% or mark the beginning of the turning point to combat inflation. The data showed that producer prices were now 7.2% higher than they were a year ago. This was the eighth consecutive month that prices had risen by more than 6% on an annual basis. The new figures add to worries that producers will soon be forced to raise prices to limit the impact of spiraling fuel and food prices. Analysts said that firms could only pass on so much to the consumer before having a negative impact on company profits.