NEW YORK WHOLESALE

The producer price index fell 1 percent in May, after dropping 0.2 percent in April, the Labor Department reported Wednesday. Gasoline prices dropped nearly 9 percent, the most in almost three years. Food costs also fell.

The index measures price changes before they reach the consumer. Excluding food and energy, the so-called "core" index increased 0.2 percent, the same as in April.

In the past 12 months, wholesale prices are up only 0.7 percent, the smallest gain since October 2009. The core index has risen 2.7 percent in the same period. That's the same pace as last month and down from a 12-month change of 3.1 percent in January.

"Inflation really isn't that big an issue," said Joel Naroff, president of Naroff Economic Advisors. "Europe is a mess, oil prices are down, further declines in gasoline prices are coming and the U.S. economy is not growing strongly enough for any firm to have much pricing power."

Modest wholesale inflation reduces pressure on manufacturers and retailers to raise prices. That helps keep consumer prices stable, which boosts buying power and drives economic growth. Consumer spending makes up 70 percent of economic activity. The consumer price index for May will be released Thursday.

Mild inflation could give the Federal Reserve room to hold interest rates at record-low levels and potentially take other steps to boost the economy.

Food costs fell 0.6 percent in May, the biggest decline since December. A 2.2 percent drop in meat prices drove most of the decline. The cost of fresh fruits and melons fell 7.1 percent, the most in a year.

Core prices were pushed up by more expensive pharmaceuticals and a big rise in the cost of commercial furniture, which jumped 1.8 percent. That was the biggest increase for commercial furniture since February 1981.

Gas prices have tumbled 40 cents since peaking on April 6. On Tuesday, the average nationally price for a gallon of gas averaged $3.54, according to AAA. That's down 19 cents from a month earlier.

Higher gas and food prices early last year limited Americans' ability to buy other goods. That caused consumer spending, adjusted for inflation, to fall sharply. As a result, the economy barely grew in the first half of 2011.

The economy has picked up since then but is still growing sluggishly. That is keeping a lid on price increases. Slow growth makes it harder for consumers and businesses to pay higher costs. The economy expanded at just a 1.9 percent annual rate in the January-March quarter.

Sainsbury's benefited from an extra 2m visits from shoppers in the week of the Queen's diamond jubilee amid strong demand for party food and bunting.

The UK's third biggest supermarket chain, which operates more than 1,000 stores, said underlying sales rose 1.4% in the 12 weeks to 9 June, which was slower than the 2.6% in the previous quarter but according to the grocer was still stronger than the rest of the market.

Sainsbury's saw 24m customer transactions – about 2m more than normal – in the week of the jubilee and sold 550 miles of bunting, 670,000 union flags and more than 600,000 bottles of champagne and sparkling wine.

It enjoyed its best ever weekly sales of strawberries, with more than 2m punnets sold, 13% greater than the previous record in Wimbledon week last year.

The strong performance will heap more pressure on struggling market leader Tesco, which earlier this week reported a 1.5% fall in underlying sales for a period not including jubilee week.

Chief executive Justin King said: "Customers continued the habit of savvy shopping to save money in order to be able to treat themselves on special occasions, shown by strong sales in the lead-up to the jubilee celebrations."

He added that Sainsbury's was "well placed" to continue to outperform the market.

Shares opened 2% lower on Wednesday as the like-for-like sales figure came in slightly below some City forecasts for growth of up to 2%.

Seymour Pierce stockbrokers kept its forecast for profits this year at £770m, compared with £712m a year earlier, and said the company should see some benefit from sporting events such as the Olympics.

Sainsbury's is likely to have benefited more than most from the jubilee celebrations. It was one of the main sponsors of the Thames diamond jubilee pageant and organised its own jubilee family festival in Hyde Park featuring performances from BBC1's Strictly Come Dancing.

The period also saw its biggest ever week of clothing sales, with the fourth collection of womenswear designed by TV fashion guru Gok Wan set to be the most successful to date.

Its Sainsbury's Local convenience stores enjoyed 16% growth after 21 new shops were opened in the period.

Improvements to its website allowing shoppers to order easily from mobile phones helped drive a 20% rise in online sales.

The group has been one of the strongest performers in the supermarket price war, helped by its brand match scheme, which guarantees to match Asda and Tesco on 14,000 branded goods.

Its own-label ranges have played a key part in recent strong performances and have underpinned its Live Well For Less advertising campaigns.

Sainsbury's is also three-quarters of the way through revamping its By Sainsbury's own-label range, which has included adding new products and improving existing ones.