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May wholesale prices fall 0.6

Largest drop in 2 years helps ease inflation worries

WASHINGTON -- Wholesale prices fell by the largest amount in more than two years in May, helping to ease concerns that a big spike in energy costs earlier in the year might spell inflation troubles.

Meanwhile, May retail sales tumbled for the first time in nine months, a decline that was blamed on unusually cool weather during the month and not seen as evidence that consumer spending, the engine that drives the economy, was threatening to sputter out.

The Labor Department reported yesterday that wholesale prices fell by 0.6 percent last month with three-fourths of the drop attributed to falling energy prices. Food costs also fell during the month, thanks to a big drop in vegetable prices.

Outside food and energy, so-called core inflation was contained as well, edging up just 0.1 percent, compared to a 0.3 percent increase in April.

The Commerce Department said retail sales dropped 0.5 percent, the first decline since August, and the biggest drop since a similar 0.5 percent decrease in June of last year.

Analysts noted that the decline, which was bigger than the 0.2 percent drop that had been expected, followed a sizable 1.5 percent increase in April.

Cool weather dampened sales of summer clothes, but with temperatures heating up, many economists predicted a rebound in June.

In further evidence that the economy is on solid footing, the 600,000-member National Federation of Independent Business reported yesterday that its small business optimism index rose to 100.8 in May, a point higher than April with eight of the 10 components pointing to strength in the months ahead.

Federal Reserve chairman Alan Greenspan, testifying to Congress last week, said the economy seemed to be on ''reasonably firm footing" with inflation remaining under control. Greenspan's assessment has bolstered the belief that the Fed will boost interest rates when policy makers meet at the end of this month. The 0.6 percent drop last month in wholesale prices, the biggest since a 1.5 percent plunge April 2003, was much bigger than the more modest 0.2 percent decline analysts had been expecting.

The government reports on consumer prices today, and analysts are predicting a small 0.1 percent rise, compared to a 0.5 percent spurt in April.

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