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U.S. wholesale prices fall unexpectedly in May

While lower prices are good for consumers, it is more difficult for borrowers to pay off debts and businesses to boost profits.

By Ananth Baliga
A worker and customer discuss a sale in the Fulton Market meatpacking district in Chicago. The Labor Department reported Friday a 0.2 percent drop in the Producer Price Index, which reflects the price of goods before they reach store shelves. (UPI Photo/Brian Kersey) | <a href="/News_Photos/lp/399cefc5e06e96d80d56122f8a99461b/" target="_blank">License Photo</a>
A worker and customer discuss a sale in the Fulton Market meatpacking district in Chicago. The Labor Department reported Friday a 0.2 percent drop in the Producer Price Index, which reflects the price of goods before they reach store shelves. (UPI Photo/Brian Kersey) | License Photo

WASHINGTON, June 13 (UPI) -- U.S. wholesale prices, considered a gauge of inflation, fell unexpectedly in May, a sign that inflationary pressures are weak in a subdued economy.

The producer-price index fell by 0.2 percent for May, according to the Labor Department. Economists surveyed by The Wall Street Journal had estimated a 0.2 percent rise in the index. The producer-price index is a reflection of the prices firms get in return for their products and services.

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Over the past 12 months, wholesale prices have seen a two percent increase.

Friday's figures suggest that inflationary pressures are easing off and that pricing power is still lacking in an economy still in recovery mode.

Weak prices were seen across the board in May with food and energy prices registering the biggest declines. The cost of unprocessed fish dropped 26 percent and petroleum gas was down 4.4 percent.

Inflationary pressure is one of the key indicators the Federal Reserve is keenly watching as it scales back its bond buying program and contemplate the right time to increase its main interest rate. Fed officials are hoping for moderate inflation, as that is sign of healthy economic activity, whereas falling prices signal the opposite.

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The Fed is hoping for inflation to reach the 2 percent level, where it will be comfortable to assume the economy is doing well.

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