Wholesale prices rise, at least temporarily

WASHINGTON - Wholesale prices surged last month, the government said yesterday in a report showing that the economic rebound eventually could spark inflation.

Most economists aren't worried, though. They think the economy remains too weak for the price increases seen in November to last. The government will report today on November consumer prices.

Amid the prices reports, the Federal Reserve today is to conclude a two-day meeting and is likely weighing the higher-than-expected wholesale inflation. Should inflation pressures mount, the central bank could be forced to start raising interest rates sooner than expected.

But Fed policymakers aren't likely to raise a key rate at the end of their meeting today. The Fed has kept rates at record lows to bolster the shaky recovery.

An eventual Fed rate increase could help defuse inflation and boost the value of the dollar against other currencies. But it carries risks. Higher interest rates would raise borrowing costs and squeeze corporate profits. They could send stock prices falling. And they risk derailing the economic recovery.

The economy is growing steadily but slowly. The latest sign was a report yesterday that industrial production rose a better-than-expected 0.8 percent in November. Also, factory capacity - the portion of industrial facilities in use - rose to 71.3 percent, from 70.6 percent in October. It shows that factories, mines, and utilities are using more of their plants as the recovery takes root.

But capacity use remains far below its long-run average of around 80 percent. Analysts said industrial spare capacity remains so large and demand still is so soft that inflationary pressures are likely to remain tame.

Overall, wholesale prices jumped 1.8 percent in November, the Labor Department said. That was more than double the gain analysts had expected.

Core inflation, which excludes energy and food, rose 0.5 percent, the sharpest increase in more than a year.

Much of the overall increase reflected a jump in energy prices. Yet that increase will likely reverse itself. Analysts noted that oil prices have fallen about 10 percent in December.

"The 1.8 percent jump in wholesale prices is a red herring," said Paul Dales, U.S. economist at Capital Economics. "The Fed is not going to see this as any indication that their actions are triggering higher inflation."

One reason is that throughout the economy, few companies have much pricing power in the face of budget-conscious consumers. Kroger Co., the supermarket chain, for example, posted a lower quarterly profit in part because it's had to cut prices to compete even as its costs have risen.

Stronger activity at mines led last month's increase in industrial production, rising 2.1 percent. The manufacturing sector - the biggest chunk of industrial output - rose 1.1 percent. Utilities fell 1.8 percent, according to the Fed report.