U.S. Wholesale Prices Increase 1.1%

Largest increase since November

Surging energy and food costs stoked U.S. wholesale prices by a much larger-than-expected 1.1% in March amid mounting concerns about accelerating inflation, the Labor Department said on April 15. The monthly Producer Price Index (PPI), which tracks wholesale inflation pressures before they are passed on to consumers, showed prices rising at a much faster pace than most economists had anticipated.

The spike in the PPI was the largest since November and occurred as world oil prices have rocketed to record peaks in recent weeks.Economists had expected wholesale costs to increase 0.6% in March, so the actual gain was almost double what most analysts had predicted.

The core PPI reading, which strips out volatile food and energy costs, rose a much tamer 0.2% last month, the government survey revealed. The core PPI rate was weighed down in part by a 0.2% decline in passenger car prices. Analysts said auto manufacturers have been forced to discount prices in a bid to woo consumers reeling from the housing downturn and a related credit crunch.

Energy prices surged 2.9% in March, marking a notable acceleration compared with a 0.8% rise in energy costs in February. Energy costs were propelled higher in part by rising diesel and heating oil costs which rose 15.3% and 13.1% respectively.

Economists say rising energy costs have impacted wholesale food prices as farmers pay more to fuel their tractors and transport their products to market. Food prices leapt 1.2% during March after increasing 0.5% in February. Prices for a range of foods have increased in recent months, including such staples as wheat, rice and milk.

U.S. economists say the Federal Reserve has been more focused on fighting an economic slowdown and averting a possible recession than tempering inflationary pressures. The Fed has aggressively slashed interest rates in recent months in a bid to fire up economic momentum. "For now the Fed is operating under the assumption that the slowing economy and excess slack will ease price pressures at the core level. Energy and commodity prices are also expected to level off, although there is a high degree of uncertainty to this assumption," economists at Societe Generale said in a briefing note.

Copyright Agence France-Presse, 2008

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