Gas costs drive wholesale prices up

WASHINGTON -- A surge in gas costs drove U.S. wholesale prices up in September by the most in five months. Economists cautioned much of the increase was the result of one-time factors and said broader inflation remains modest.

The Producer Price Index, measuring price changes before they reach the consumer, rose 0.8 percent in September. Energy prices climbed 2.3 percent. Wholesale gas prices jumped 4.2 percent, the most since March. Excluding energy prices, wholesale prices rose just 0.3 percent. Food prices also rose sharply.

Excluding food and energy costs, which fluctuate sharply month to month, so-called core prices rose a modest 0.2 percent. Higher prices for pickup trucks accounted for one-third of the increase in core prices.

Economists said seasonal adjustments magnified the rise in energy costs. Gas prices usually start to dip in September, after the summer driving season. But wholesale gas prices rose during the first half of the month, when the survey was taken. Gas prices fell in the second half.

Neil Dutta, an economist at Bank of America, attributed much of the gain in wholesale prices to one-time factors. The uptick in the cost of pickups may have been partly due to lingering supply chain disruptions caused by the March earthquake in Japan, he said.

The cost of diesel fuel and liquefied petroleum gas also rose. Natural gas prices dipped.

Wholesale prices had moderated in recent months, after rising sharply earlier this year. Fears of a possible U.S. recession and slower growth overseas had restrained inflation.

The core index has risen 2.5 percent in the 12 months that ended in September.

"Inflation is not wildly out of control, but it certainly isn't as tame as would be expected during this stage," said Jennifer Lee, a senior economist at BMO Capital Markets.

Before September, wholesale energy prices had fallen for three straight months, dragged down by lower oil prices. Oil hovered around $86 per barrel in trading Tuesday, down 24 percent from a recent peak in May. That's helped reduce gas prices, which averaged $3.47 per gallon yesterday, according to AAA, and are down from $3.59 a gallon a month ago and nearly $4 per gallon in May.

Wholesale food prices rose 0.6 percent in September after a sharp increase in August. That trend could cool next year. The U.S. Department of Agriculture reported last week farmers will likely finish next summer with a bigger surplus of corn than previously expected. A bushel of corn cost $6.41 Monday, down from a record $7.99 in June.

Yesterday's report could make it more difficult for the Federal Reserve to take aggressive steps to boost growth, because it shows prices of some goods are still rising. The central bank last month said it would swap $400 billion of its short-term Treasury securities for longer-term securities to lower long-term interest rates.

The Fed's inflation target is 1.5- to 2-percent growth in core prices at an annual rate. Last month, Fed policymakers said inflation would decline to levels "at or below" the target, according to minutes released last week.