The Labor Department says the Producer Price Index fell by 0.2 percent last month, the first time a decline was posted since the near-recessionary 0.6 percent drop in January. While core inflation -- prices that exclude food and energy -- rose 0.3 percent, food prices dropped 0.8 percent and energy prices were down 1.1 percent, creating the tepid decline. While housing is holding down growth, automobile prices are credited with revving up inflation numbers by approximately 0.2 percent.

As energy prices receded, the price of light trucks, notably SUVs, rose. Wholesale gasoline prices had the largest drop since January, causing pump prices for June to retreat from record levels of $3.22 a gallon, set back in May.

But continuing oil production problems and the potential threat of political or weather-related disruptions has pushed crude futures up to $75 a barrel, near all-time highs of over $78 a barrel. Some experts believe that crude futures will go over $80 a barrel before it's over.

That, and a few other indicators, has prognosticators like The Conference Board, a non-profit business research organization, anticipating that the Federal Reserve will raise short-term interest rates by 50 basis points by the end of the year, bringing short-term interest rates to about 6.25 percent.

If that happens, it's goodbye to below-annual-median mortgage interest rates, and a discouraging picture on the housing front, says the Conference Board's chief economist, Gail D. Fosler.

"But progress is underway," she avers. "Demand is slowly coming back to the market. Mortgage applications are up about 17 percent since the low point last August. And the drop in housing starts has been so sudden and dramatic that it has taken inventories down to close to historic averages -- though still far above the levels common during the past 10 years."

The Conference Board notes that housing has "enjoyed a decade of strong (booming since 2000) conditions" aided by long-term lower mortgage interest rates. As a result, the "housing affordability index" has remained high and within a remarkably narrow range of about 120 to 140 since 1993. (An index reading of 100 means that a family earning the median income has enough money to qualify for a mortgage on a median-priced home assuming a down payment of 20 percent).

But in 2004, affordability began to plummet, and the current reading is 110, the lowest since 1990.

"This weakness in the U.S. housing market is not just a cyclical phenomenon but a response to some very important long-term trends," says Fosler. "Home prices outpaced average incomes, so there would be a downward bias in any event. As mortgage rates rise, the downward pressure on prices will persist. A surge in wages could solve this problem, but rapid increases in wages would create other problems like inflation that the Federal Reserve would have to address with higher interest rates. While housing is not likely to be a drag on the U.S. economy in the second half of 2007 and 2008, it is also unlikely to make much of a positive contribution for the foreseeable future."

Consumer spending has been impacted by slower housing prices and higher gasoline prices, says the Board, and corporate earnings have slowed.

"Looking forward, it is reasonable to expect more of the same," says Fosler. "As growth picks up, so will employment and wages. Consumers should get some relief from high gas prices later in the year as refiners' margins tend back toward their averages, even if oil prices don't come down. If oil prices drop, the benefit to the consumer will be just that much greater."

The Conference Board predicts that "the general trend in costs, together with yet another commodity price cycle, suggests that both measures will show higher inflation rates as 2007 progresses."

Wages will continue to rise, which could help the housing market, as unemployment rates remain low. Currently unemployment is about 4.5 percent.