Consumer Prices Expected to Rise, with Fed Watching

The latest numbers on retail prices will be closely watched by investors ahead of trading Friday, with concerns about inflation now pushing worries about a slowing economy on the back burner.

The Labor Department will issue the consumer price index (CPI) for May at 8:30 am New York time, with economists predicting a rise from the previous month.

On average economists predict that the CPI rose 0.5 percent last month, compared with a 0.2 percent gain in April, according to Briefing.com. The core CPI, which excludes volatile food and energy prices, is expected to have risen 0.2 percent, up from a 0.1 percent rise the previous month.

A large jump in gasoline prices is expected to have a large effect on the overall CPI. The average price or a gallon of gas rose to $3.82 in May from $3.51 in April, according to the Associated Press.

Federal Reserve Chairman Ben Bernanke has brought inflation to the forefront with recent statements highlighting the economic concerns of rising prices. Many have taken those comments as a signal that the Fed is ready to push interest rates higher and an unexpectedly high rise in the CPI could bring out the sellers on Wall Street.

"A strong figure will certainly mean we will be looking for one, if not two, interest rates hikes in the U.S. this year," Sam Stanley, dealing director at Halo Financial, told "Worldwide Exchange."

On Monday, Bernanke said the Fed warned about rising energy prices and also said the Fed would "strongly resist" a tendency for inflationary psychology to become entrenched.

The week before, he said a weak dollar could also drive inflation.

Concerns about inflation are also hitting the housing market. Fixed mortgage rates rose to almost and eight-month high following Fed comments about rising prices.