US producer prices fell in May after two months of solid gains, but the decline was not enough to change perceptions that inflation pressures are steadily creeping up.

The Labour Department said yesterday its producer price index (PPI) for final demand slipped 0.2 per cent after advancing in April by 0.6 per cent, which was the largest gain in one-and-a-half years.

The decline was driven lower by cheaper food and petrol.

Economists, who had expected producer prices to edge up, saw the decline as a correction after gains in March and April, and said it did not change their view that prices were firming.

"The net result is a pick-up. The net strengthening makes the modest acceleration in the more important consumer inflation measures more credible," said Jim O'Sullivan, chief US economist at High Frequency Economics in Valhalla, New York.

The government revamped the PPI series at the start of the year to include services and construction. Big swings in prices received for trade services have injected volatility into the series, making it hard to get a good read on inflation.

The overall inflation backdrop remains generally tame, with the main gauge watched by the Federal Reserve continuing to run below the US central bank's 2 per cent target.

Still, key consumer inflation measures pushed up in April and are expected to continue edging higher as the labour market tightens and the economy regains momentum. That should position the Fed to raise interest rates in the second half of 2015.

The US central bank, which is already scaling back the amount of money it is injecting into the economy through monthly bond purchases, has kept overnight lending rates near zero since December 2008. Fed officials meet on Tuesday and Wednesday to assess the economy's health and their monetary policy stance.

"They will probably say inflation is trending toward its 2 per cent goal," said Scott Brown, chief economist at Raymond James in St Petersburg, Florida.

A separate report showed consumer sentiment slipped slightly in early June. The Thomson Reuters/University of Michigan's consumer sentiment index was at 81.2 from 81.9 in May.

The report offered a mixed reading on the outlook for prices. Households' prediction of inflation a year out fell to a six month low of 3 per cent from 3.3 per cent in June, but the five-year projection ticked up to 2.9 per cent from 2.8 per cent.

Producer inflation in May was depressed by broad price declines at the factory gate, while wholesale food prices snapped four consecutive months of increases.

There were also declines in the prices of trade services, a gauge of retailers' and wholesalers' margins.

And while wholesale petrol prices fell last month, economists cautioned increases were in the cards because of the unrest in Iraq.

A recent increase in the price of oil "should filter through to the economy over the next several months, especially if the sectarian violence (in Iraq) continues," said Jay Morelock, an economist at FTN Financial in New York.

In the 12 months through May, prices received by the nation's farms, factories and refineries rose 2 per cent, moderating from April's 2.1 per cent gain.-Reuters