Wholesale Prices Higher on Energy Costs

Wholesale prices leaped by 0.9 percent in April, the most in seven months, propelled largely by soaring costs for gasoline and other energy products.

The jump in the Producer Price Index, which measures the costs of goods before they reach stores shelves, came after a sizable 0.5 percent increase in March, the Labor Department reported Tuesday.

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Virtually all of the pickup in inflation at the wholesale level, however, reflected surging energy costs, which shot up by 4 percent in April, the largest increase since October.

Excluding the costs of energy and food products, however, the inflation picture didn't look as bad. These "core" prices edged up by 0.1 percent in April for the second month in a row. That suggested the spike in energy prices hasn't fed into the price tags of lots of other products.

This reading on overall inflation was a bit higher than the 0.8 percent increase economists were expecting. However, the core inflation reading was a tad lower than the 0.2 percent increase analysts were forecasting.

To fend off inflation, the Federal Reserve boosted interest rates last week, marking the 16th increase in two years. Keeping their options wide open, policymakers said another increase might be possible or they could take a pause in their rate-raising campaign — depending upon how inflation and economic activity unfold.

Economists have mixed opinions about what the Fed will do at its next meeting in late June. Some are predicting one more bump up in rates. Others think they leave rates alone.

Oil prices hit a record high of $75.17 a barrel in late April; they are now hovering below $70 a barrel. Those high crude oil prices have helped propel prices at the gasoline pumps to $3 a gallon in some areas.

The PPI report said that energy prices surged by 4 percent in April, up from a 1.8 percent rise in March.

Gasoline prices last month jumped 12.3 percent, the most since October 2004. Home heating oil costs shot up 13.7 percent, the biggest gain since October 2005.

High energy prices are a wild card for the Federal Reserve. Soaring energy prices can slow economic activity by forcing businesses and consumers to pare spending and investment on other things. High energy prices also can feed into the price tags for other goods and services, spreading inflation. Or, high energy prices can result in both scenarios — slower economic activity and higher inflation, an especially bad combination.

So far, economic growth has been buoyant and the run-up in energy and other commodity prices appears to have had "only a modest effect" on core inflation, which excludes food and energy costs, Fed policymakers said last week.

The small 0.1 percent rise in core prices in April suggested that most other prices are fairly well behaved. For the 12 months ending April, core prices are up 1.5 percent. That compares with a 4 percent rise in overall wholesale prices over the same period.

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