WASHINGTON – U.S. producer prices shot up 1.7 percent last month, the biggest gain in nearly 15 years and well above expectations, as energy costs skyrocketed and food prices surged, a government report showed on Tuesday.
Even outside of food and energy, producer prices climbed a relatively swift 0.3 percent in October, the Labor Department (search) said, well ahead of the 0.1 percent gain Wall Street had expected.
Propelled by sharply higher energy and food costs, wholesale prices soared by 1.7 percent in October, the largest increase since early 1990.
The Producer Price Index (search) measures costs of goods before they reach store shelves. The big over-the-month jump came after wholesale prices edged up just 0.1 percent in September, the Labor Department reported Tuesday. Concerns about inflation have driven the Federal Reserve's (search) credit-tightening policies of recent months.
The report suggested that inflation at the wholesale level is picking up after months of being quite well-behaved.
"Inflation is not a problem, but a corner has been turned," said Ken Mayland, president of ClearView Economics. "We face a period of still low, but building inflation pressures, which the Fed has plenty of time to nip in the bud."
The economy's soft patch in the spring and early summer helped to keep wholesale prices relatively subdued, Mayland explained. Now that the economy is gaining traction, inflation probably will be on the rise as well, he said.
Excluding energy and food costs, which can swing widely from month to month, "core" wholesale prices climbed in October by 0.3 percent for the second month in a row.
The PPI figures showed larger gains than economists were expecting. They were forecasting overall wholesale prices to go up by 0.6 percent in October and core prices to edge up by 0.1 point.
On Wall Street, the higher-than-expecting reading on the PPI helped to push stocks lower. The Dow Jones industrials lost 59 points and the Nasdaq was off 16 points in morning trading.
The 1.7 percent increase in the overall PPI was the largest advance since January 1990.
From an economic point of view, inflation — while clearly on the rise — isn't currently a threat to the economy, analysts said.
Federal Reserve Chairman Alan Greenspan (search) and his Fed colleagues, in a statement after their meeting last week, said that the economy appears to be growing "at a moderate pace despite the rise in energy prices."
Even with the surge of energy prices, Fed policy-makers said "inflation and longer-term inflation expectations remain well contained."
Against that backdrop, Fed policy-makers said last week that they can stick with their gradual approach to raising short-term interest rates.
The Fed decided last week to boost a key short-term rate by one-quarter percentage point to 2 percent, its fourth rate increase this year. The Fed is pushing up rates now to prevent inflation from being a problem in the future.
A growing number of economists believe the Fed will increase rates again at its next meeting on Dec. 14. Tuesday's wholesale prices figures would justify such a move, economists said.
In October, energy prices soared by 6.8 percent, the biggest increase since February 2003, and a big turnaround from the 0.9 percent dip registered in September.
Gasoline prices in October surged by 17.3 percent, the largest increase since June 2000. Home heating oil costs skyrocketed by 17.9 percent, , the largest advance since February 2003. Liquefied petroleum gas, such as propane, jumped 14.7 percent, the biggest gain since January.
Oil prices, which hit a record high of just over $55 a barrel late last month, have retreated recently. Oil prices are hovering at more than $46 a barrel.
Food prices, meanwhile, jumped by 1.6 percent in October, compared with a tiny 0.1 percent rise in September. October's increase, the most in a year, was led by soaring costs for vegetables. Prices for fruits, beef and veal, and pork also went up.
Economists believe that the rise in food prices reflected supply disruptions related to hurricanes that had ripped through Florida and the southeast.
Elsewhere in the report: prices for passenger cars dropped by 1.3 percent and costs for heavy motor trucks declined by 0.7 percent. But costs for construction machinery and equipment jumped by 2.7 percent in October, the largest increase since January 1980.