In this photo take March 1, 2011, meat manager Mike Watson stocks the shelves at a Kroger Co. supermarket, in Cincinnati. Wholesale prices rise 1.6 pct. due to biggest jump in food costs in more than 36 years. (AP Photo/Al Behrman) By Al Behrman
WASHINGTON (AP) -- 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 increase. Tomatoes, green peppers and lettuce all more than doubled in price.
Meat and dairy costs also rose, reflecting higher prices for corn and soybean that are used in animal feed. Economists expect food prices to keep increasing for the rest of this year. Earlier this month, the UN's Food and Agriculture Organization said world food prices have risen to their highest point since 1990, when the agency first 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 past 12 months.
David Resler, an economist at Nomura Securities, said the jump in food and energy prices is 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.
"Both food and gasoline prices are going to stop rising so rapidly," Resler said.
But John Ryding, an economist at RDQ Economics, disagreed, noting that consumers will feel the impact for some time.
"We do not buy the Fed's reassurance that these pressures will be temporary and we believe the public, seeing these strong increases in food and energy ... will not be marking back down their inflation expectations," Ryding said.
In addition to rising prices, the weak housing market could also drag on the economy.
Home construction plunged to a seasonally adjusted 479,000 homes last month, down 22.5 percent from the previous month, the Commerce Department said Wednesday. It was lowest level since April 2009, and the second-lowest on records dating back more than a half-century. The building pace is far below the 1.2 million units a year that economists consider healthy.
The stock market dropped sharply in morning trading on the disappointing U.S. economic reports and growing concerns about Japan's nuclear crisis.
The Dow Jones industrial average fell by more than 151 points.
The earthquake in Japan could lower oil prices for the next month or two, which should temper increases in wholesale prices in coming months. Japan is a big oil consumer, and its economy will suffer in the aftermath of the quake.
But as the country begins to rebuild later this year, it will need more oil and raw materials such as steel and cement, which could push up prices further. Japan may also need to import more oil to make up for power lost due to damaged nuclear facilities.
Oil prices rebounded Wednesday after falling sharply earlier in the week. Oil rose $2.20 to $99.38 a barrel in morning trading on the New York Mercantile Exchange.
Wholesale prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.
(Copyright 2011 by The Associated Press. All Rights Reserved.)