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updated: 9/13/2012 7:56 AM

More costly gas drives up wholesale prices

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Associated Press

WASHINGTON -- A sharp rise in gasoline costs drove up wholesale prices last month by the most in more than three years. But outside energy and food, price gains were mild.

The producer price index, which measures price changes before they reach the consumer, jumped 1.7 percent in August, the Labor Department said Thursday. The increase was mostly because gas prices soared 13.6 percent, the biggest gain in three years.

Food prices rose 0.9 percent, driven up by steep increases in the cost of eggs and dairy products.

Excluding the volatile food and gas categories, core wholesale prices rose only 0.2 percent, below July's increase.

In the past 12 months, wholesale prices have increased 2 percent, a mild gain and far below the recent peak of 7.1 percent in July 2011.

Low inflation means consumers have more money to spend, which helps the economy. It also gives the Federal Reserve more leeway to keep interest rates low in an effort to spur economic growth. If prices were to begin rising rapidly, the Fed might be forced to raise rates in response.

The severe drought in the Midwest may have begun to impact wholesale food prices in August. The dry weather has harmed a range of crops, including corn and soybeans.

Higher corn prices raise costs for many different foods on grocery store shelves. Corn is used to make everything from cosmetics to cereal, soda, cake mixes and candy bars. It is also used as a feed for cattle and hogs. That means more expensive corn can also push up beef and pork prices

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