WASHINGTON – Wholesale prices barreled ahead while housing and industrial activity faltered – a blend of high costs and slow growth that means the Federal Reserve's most likely move on interest rates next week will be no move whatsoever.

Chairman Ben Bernanke and his colleagues have made it increasingly clear that they're not inclined to cut interest rates further for fear of aggravating inflation. On the other hand, boosting rates too soon to fend off inflation would hurt an economy already battered by housing, credit and financial woes.

That's why many economists are predicting the Fed will hold rates steady at 2 percent, a four-year low, at the June 24-25 session.

The Labor Department's Producer Price Index, which measures the costs of goods before they reach store shelves, leaped 1.4 percent in May, the biggest increase in six months.

The rising energy and food costs will eventually force companies to boost prices for many other goods and services, spreading inflation through the economy.

Separately, the Commerce Department reported that the number of new housing projects started in May fell 3.3 percent to a 975,000 pace – the lowest in 17 years.

Some fear that the nation could be headed for a bout of stagflation, a toxic mix of stagnant economic growth and inflation not seen in decades.

But Mr. Bernanke – who has ramped up his anti-inflation talk recently – has said that's not the case.

In the PPI report, when energy and food costs were disregarded, the so-called core prices rose a much more modest 0.2 percent in May, an improvement from April's 0.4 percent increase. That suggested that other prices were better-behaved.

Over the past year, overall producer prices have gone up 7.2 percent, while core prices have increased 3 percent.

Energy prices were up 4.9 percent in May. Diesel fuel prices jumped 11.2 percent, gasoline prices rose 9.3 percent and home heating oil increased 8 percent.

Food prices went up a sharp 0.8 percent.

Wholesale prices are rising faster than consumer prices because businesses – for competitive or other reasons – have not passed along to consumers all of their higher costs from energy and other raw materials.

The Fed is hoping such restraint will continue.

"For now the Fed seems content to talk tough" against inflation, said Stephen Stanley chief economist at RBS Greenwich Capital. "This strategy is risky."

In another report released Tuesday, the Federal Reserve reported that industrial production fell 0.2 percent in May, the second straight monthly decline. Plants operated at only a 79.4 percent capacity, the lowest since September 2005.