Retail sales, wholesale prices fall in May

Tuesday, June 14, 2005 | 9:10 a.m.

American shoppers cut back on purchases in May after a surge a month earlier, while falling energy costs drove down wholesale prices, showing inflation is tame.

Reduced spending on vehicles, fuel and department-store merchandise pulled down sales by 0.5 percent after a 1.5 percent increase in April that was the biggest since September, the Commerce Department said today in Washington. Prices paid to producers fell 0.6 percent, led by the biggest drop in energy costs in two years.

"We have a picture of an economy that continues to grow at a moderate pace and inflation that is not getting away from you," said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York.

April purchases were revised higher to reflect the biggest increase in sales excluding auto dealers in two years. General Motors Corp. and Ford Motor Co. are among companies sweetening incentives to invigorate sales, suggesting inflation is unlikely to quicken and prompt Federal Reserve policy makers to accelerate the pace of interest-rate increases, economists said.

The drop in producer prices "will not stay the Fed from its appointed round of rate hikes," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania.