Wholesale prices rise more than expected in June
WASHINGTON -- Wholesale prices took a bigger-than-expected leap in June, rising the most since November 2007, led by more expensive energy products.
The 1.8 percent jump in the Producer Price Index, which tracks the costs of goods before they reach store shelves, came after wholesale prices rose 0.2 percent in May, the Labor Department reported Tuesday. Economists expected a 0.9 percent gain last month.
The sharp rise in wholesale prices -- as well as "core" prices that exclude food and energy -- could fan investors' fears about inflation. But economists believe the increases are temporary and don't signal the beginning of a dangerous bout of spiraling prices this year.
Many analysts expect the increase in energy prices will be short-lived and that the weak economy will restrain companies from ratcheting up prices they charge consumers.
Over the past 12 months, wholesale prices have actually fallen 4.6 percent.
Stripping out volatile food and energy prices, all other prices rose a bigger-than-expected 0.5 percent in June, the most since October. In May, the core prices dipped 0.1 percent. Economists expect a bump-up in core prices of just 0.1 percent last month.
For the 12 months ending in June, core prices rose 3.3 percent.
In June, energy prices jumped 6.6 percent. Gasoline prices increased 18.5 percent, home-heating oil 15.4 percent and liquefied petroleum gas, such as propane, went up 14.6 percent. All were the biggest increases since November 2007.
Crude oil prices topped $72 a barrel in June but have eased since then. Oil prices hit a record-high of $147 a barrel last July.
Food prices also rose sharply in June. They posted a 1.1 percent gain, after falling 1.6 percent in May.
A 21.8 percent jump in the price of vegetables led the way. Prices for eggs and young chickens also fed the increase in overall food prices as did a record 3.6 percent increase in the price of bottled carbonated soft drinks. The prior record price increase of 2.7 percent in that category came in January 1998.
Higher prices for cars, trucks, furniture and pharmaceutical preparations factored into the pickup in "core prices" in June.
To battle the recession, the Federal Reserve has slashed a key banking lending rate to a record low near zero. It is expected to hold the rate there through the rest of this year to help support the economy and because the central bank doesn't foresee inflation getting out of hand.
Fed Chairman Ben Bernanke and many private economists predict the recession will end later this year. However, they warn that the recovery will be slow. That means the unemployment rate, now at a 26-year high of 9.5 percent, will keep rising, probably hitting double-digits in the months ahead.
At the Fed's last meeting in late June, policymakers dropped concerns that the recession, the longest since World War II, could trigger deflation -- a destabilizing and prolonged bout of falling prices and wages.
Fed policymakers did acknowledge that energy and other commodity prices had risen. But they predicted that idle factories and the weak employment market would make it hard for companies to raise prices. The Fed said it expects inflation will "remain subdued for some time."