Producer Prices Rise 1.4% in May

Businesses struggled with higher production costs last month, primarily as a result of record-high oil prices, meaning Americans may face more expensive items on store shelves soon.

The Producer Price Index advanced 1.4 percent in May, its fastest pace in six months and another troubling sign that inflation is worsening, the government said Tuesday.

Many economists, however, prefer to measure price increases in products other than energy and food. While this gauge, called the “core” index, does not measure the full effect of inflation on Americans, it does offer a guide to how long inflation might linger. For May, core producer prices rose at a tepid pace, 0.2 percent, in line with economists’ expectations.

In a separate report on Tuesday, the Commerce Department said that home construction fell to its lowest point in 17 years last month. It came as little surprise that the housing industry is hurting, but the decline in groundbreakings suggested that the market is unlikely to make a recovery anytime soon.

Groundbreakings, or “housing starts,” dipped 3.3 percent in May, to an annual rate of 975,000, the lowest level since March 1991. Declines occurred for single-family homes and apartment complexes alike.

Permits for groundbreakings, an earlier phase of the construction process, also declined for the month, slipping 1.3 percent, to a 969,000 annual rate. Permits for new condominiums, however, ticked up slightly.

Investors were likely to focus on the producer prices report as the Federal Reserve shifts some of its focus to the inflation issue. The index was up significantly over the last 12 months; from May 2007 to May 2008, producer prices grew 7.2 percent, and core prices were up 3 percent.

The price of wholesale gasoline alone rose 9.3 percent last month, a far bigger move than any other product. Residential gasoline prices rose 3.8 percent. Over all, the wholesale price of consumer goods increased by 1.8 percent. Prices for passenger cars, women’s clothing and computers dipped slightly.

Other reports on Tuesday suggested further problems for businesses. Industrial production dipped 0.2 percent in May, the second month of declines, according to the Fed. Capacity utilization, a measure of efficiency in American industries, dropped slightly to 79.4 percent from 79.6 percent in April.

The current account balance, as measured by the Commerce Department, widened to a $176.4 billion deficit in the first three months of this year. The deficit was $167.2 billion in the final quarter of 2007.