Spikes in food, oil costs boost wholesale prices

WASHINGTON - Higher energy costs and the steepest rise in food prices in nearly four decades drove wholesale prices up last month by the most in nearly two years. Excluding those categories, inflation was tame.

The Producer Price Index rose a seasonally adjusted 1.6 percent in February, the Labor Department said Wednesday. That's double the rise from the previous month and the biggest increase since June 2009.

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Harsh winter freezes in Florida, Texas, and other Southern states sent fresh vegetable prices soaring, representing 70 percent of the food increase.

Meat and dairy costs also rose, reflecting higher prices for corn and soybeans that are used in animal feed. Economists expect food prices to keep increasing for the rest of this year. Earlier this month, the U.N. Food and Agriculture Organization said world food prices had risen to their highest point since 1990, when the agency began tracking them.

Gas prices also spiked in February and are even higher now. The national average price was $3.55 a gallon Wednesday, up 42 cents from a month earlier, according to the AAA's Daily Fuel Gauge.

Sharper prices for basic necessities are limiting consumers' ability to spend on more discretionary goods. There was little sign of inflationary pressures outside of food and energy. Core prices have increased 1.8 percent in the last 12 months.

David Resler, an economist at Nomura Securities, said the jump in food and energy prices was likely temporary, echoing remarks made by the Federal Reserve on Tuesday. Vegetable prices should come down as production recovers, he said. And turmoil in the Middle East is a major reason that motorists are facing higher gas prices.

John Ryding, an economist at RDQ Economics, disagreed, noting that consumers would feel the impact for some time.

"We do not buy the Fed's reassurance that these pressures will be temporary," he said, "and we believe the public, seeing these strong increases in food and energy . . . will not be marking back down their inflation expectations."

The earthquake in Japan could lower oil prices for the next month or two, which should temper increases in wholesale prices. Japan is a big oil consumer, and its economy will suffer in the aftermath of the quake.