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US May Wholesale Prices Dropped

FILE - Boxes marked "Made in China" are lined up in a warehouse in Cypress, California, on May 24, 2019.

WASHINGTON — U.S. wholesale prices shrank more than expected in May, according to data released Wednesday by the Labor Department, due largely to a steep drop-off in energy demand.

The May decline in the producer price index (PPI) dropped by 0.3 percent, the Labor Department said, after recording a small increase in April.

Sixty percent of the decline in final demand goods "can be traced to a 13.8-percent drop in prices for gasoline," the report added.

The department noted that the indexes for diesel fuel, chicken eggs, jet fuel, fresh and dry vegetables, as well as iron and steel scrap also fell.

Meanwhile, final demand services advanced by 0.2 percent in May, with more than 40 percent of the increase attributed to "margins for automobiles and automobile parts retailing, which rose 4.2 percent," the report said.

The decline in the PPI provides further evidence of slowing inflation, giving the Federal Reserve another data point to mull over as it weighs the prospect of a further interest rate hike.

"Goods inflation is now negative, and services inflation resumed its downward trend in May," said economist Matthew Martin of Oxford Economics in a note.

Along with consumer inflation data released a day earlier, "the report supports our call for the Fed to pause rate hikes at today's meeting and to keep rates on hold through year end," he added.