WRAPUP 2-U.S. wholesale prices up on food, gasoline; manufacturing weak
* Producer prices rise 0.5 percent in May
* Energy accounts for more than 60 percent of rise
* Core wholesale prices nudge up just 0.1 percent
* Factory output up 0.1 percent in May, after two declines
WASHINGTON, June 14 (Reuters) - U.S. producer prices rose more than expected in May as gasoline and food prices rebounded, but underlying inflation pressures remained muted, which could argue against an early scaling back of monetary stimulus by the Federal Reserve. A second report on Friday showed factory output edged up just 0.1 percent last month, a sign of lingering softness after two back-to-back declines that offers another cautionary note for the U.S. central bank. The Labor Department said its seasonally adjusted producer price index increased 0.5 percent in May after declining 0.7 percent in April. A Reuters survey of economists had forecast a rise of just 0.1 percent. "This is not a game changer. I expect that next week the Fed will reaffirm its current policies," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. Officials at the Fed will debate how soon to ratchet back on their $85 billion a month bond-buying pace at a meeting on Tuesday and Wednesday. While U.S. consumers have shown resilience in the face of higher taxes and the economy continues to create jobs at a steady if unspectacular pace, the factory sector has suffered from a recession in Europe that has weighed on global growth. The Fed said manufacturing output rose 0.1 percent last month. Overall industrial production was unchanged, held back by a big drop in utilities output. Despite the pick-up in prices received at the nation's farms, factories and refineries last month, underlying price pressures remain muted and modest domestic demand makes it difficult for producers to pass on their increased costs. Wholesale prices excluding volatile food and energy costs ticked up 0.1 percent for a second straight month. In the 12 months through May, the so-called core PPI advanced 1.7 percent after rising by the same margin in April and March. The overall PPI was also up 1.7 percent after rising 0.6 percent in the period through April. U.s. stock prices were litle changed in morning trade, while Treasury debt prices were up slightly. The dollar was modestly higher against a basket of currencies.
Signs of fundamental strength in the economy despite a tighter fiscal policy in Washington could move the Fed closer to a decision to trim the bond purchases it has been making to keep interest rates low and boost the economy. But the low underlying inflation backdrop and weakness in manufacturing make it unlikely the central bank will make any changes next week. Last month, wholesale gasoline prices increased 1.5 percent after dropping 6.0 percent in April. That increase pushed up wholesale energy prices 1.3 percent. Prices had declined 2.5 percent in April. Energy prices accounted for more than 60 percent of the increase in wholesale prices last month. Food prices rose 0.6 percent after a 0.8 percent drop in April. Food prices were pushed up by a record surge in the wholesale price of eggs, which accounted for 60 percent of the rise in the food index. Away from food and gasoline, passenger car prices fell 0.5 percent, while light truck prices increased 0.4 percent. The increase in light trucks accounted for almost two-thirds of the rise in core PPI last month.