US retail sales and wholesale prices fell in May, led by plunging energy prices that provided a cushion of relief for the struggling economy, government data showed Wednesday.
The prospect of lower inflation raised speculation that the Federal Reserve may act to further boost the sluggish economy, perhaps as early as a policy meeting next week.
Retail sales fell 0.2 percent for a second consecutive month in May, the Commerce Department said, a worrying sign that consumers are cutting back spending that fuels about 70 percent of the economy.
"Considerable weakness is showing up on the consumer front as the May retail sales report is in line with weak job numbers, declining consumer confidence, a volatile stock market, falling household net worth, and renewed worries of a global slowdown," said Chris Christopher, a senior economist at IHS Global Insight.
Car and truck sales helped prop up the number. Excluding them, retail sales dropped a sharper 0.4 percent in May.
Adding to the dimmer picture on the current second quarter, the department revised April sales gains to declines.
The data are adjusted for seasonal and other variations, but not for price changes.
"It is obvious that consumers are starting to hold back in the second quarter. The silver lining on the consumer front is that pump prices are falling, leaving an extra cushion for households to deal with all their strong headwinds," said Christopher.
Leading the drop in May retail sales was a 2.2 percent plunge in gasoline sales. High pump prices that had plagued consumers and businesses earlier in the year have been easing amid a slump in oil markets in response to Europe's debt crisis.
The next-largest decline in retail sales was in building material and garden supplies, down 1.7 percent.
But Americans were spending more in other areas. Online sales were the biggest gainer, up 1.3 percent. Clothing purchases rose 0.9 percent, and auto sales gained 0.8 percent.
While consumers hunkered down in May, wholesale prices posted their steepest decline since July 2009 amid soft demand in the fragile US economy, which grew below potential at an annual rate of only 1.9 percent in the first quarter.
The Labor Department reported its producer price index tumbled 1.0 percent -- led by a 4.3 percent dive in energy prices and a 0.6 percent fall in foods prices.
Excluding foods and energy, the so-called "core" PPI rose 0.2 percent.
"That's good news for companies making purchases, but no justification for another round of quantitative easing," from the Federal Reserve, said Brian Wesbury, chief economist at FT Advisors, referring to the Fed's two rounds of asset purchases.
"'Core' prices, which exclude food and energy, and which the Federal Reserve claims are more important than the overall number, were up 0.2 percent again in May," said Wesbury.
RDQ Economics analysts argued that the Fed has switched its focus to headline inflation with its 2.0 percent inflation target and the oil price data pointed to a further dip in energy prices in June.
"The doves at the FOMC meeting next week are likely to argue that the inflation story gives the Fed room to take out some insurance in the form of an extension of Operation Twist through the summer," they said.
The Fed's current Operation Twist program, in which the central bank sells short-term securities to buy longer-term ones in a bid to tamp down interest rates, is scheduled to expire at the end of June.
The Federal Open Market Committee (FOMC) is slated to meet next Tuesday and Wednesday. The central bank has said it expects to keep its interest rates near zero at least until late 2014 to help bolster the fragile economy.