The Labor Department reported Tuesday that wholesale prices rose by just 0.2 percent in May, a big drop from the past two months. But core inflation, excluding food and energy, showed an increase of 0.3 percent, faster than analysts had expected.
Inflation worries coupled with signs of a weakening economy meant another bad day on Wall Street.
The Dow Jones industrial average fell 86.44 points to close at 10,706.14, erasing the last of the Dow’s gains for this year.
Fears that higher inflation will trigger further interest rate increases from the Federal Reserve and contribute to a sharper U.S. economic slowdown are not only depressing American investors but have contributed to a global stock selloff in recent days.
The small 0.2 percent increase in wholesale inflation was the best performance since a 1.3 percent drop in February. Food prices actually fell by 0.5 percent and energy costs, which had jumped by 4 percent in April, slowed to a much smaller 0.4 percent rise in May.
But outside food and energy, price pressures mounted, with the 0.3 percent increase in core inflation coming after two moderate gains of 0.1 percent in March and April.
While this could raise concerns at the Federal Reserve, analysts said the more important inflation figure will be consumer prices for May, which will be released Wednesday.
In advance of that report, economists were looking for overall prices to be up 0.4 percent, slower than the 0.6 percent jump in April, and core consumer prices to show a modest 0.2 percent increase, down from a 0.3 percent rise in April.
Federal Reserve Chairman Ben Bernanke contributed to a 199-point drop in the Dow Jones industrial average on June 5 when he called recent increases in inflation ‘‘unwelcome’’ developments, sending a signal the central bank could boost rates for a 17th time at the June 28-29 meeting.