BUSINESS

More expensive gas drives US wholesale prices 0.7 pct. higher in February; food prices fall

03/14/2013 08:46 EDT | Updated 05/14/2013 05:12 EDT
WASHINGTON - A measure of U.S. wholesale prices rose in February by the most in five months, pushed higher by more expensive gas and pharmaceuticals. But outside those increases, inflation was mild.

The producer price index grew a seasonally adjusted 0.7 per cent in February from January, the Labor Department said Thursday. That's up from 0.2 per cent in the previous month. Wholesale gas prices increased 7.2 per cent.

Even with the increase, wholesale prices have risen just 1.7 per cent in the past 12 months. That's below the Federal Reserve's 2 per cent inflation target. Mild inflation gives the Fed more latitude to continue with its aggressive policies to spur more economic growth.

The index measures the cost of goods before they reach consumers. Wholesale prices are what manufacturers and farmers receive for their products from retailers and distributors.

Excluding volatile food and energy costs, core wholesale prices rose only 0.2 per cent last month. In the past 12 months, core prices have increased 1.7 per cent.

Higher pharmaceutical costs accounted for 20 per cent of the increase in core prices last month. Car and pickup truck prices also rose.

Wholesale food prices fell 0.5 per cent last month, led by an 18 per cent drop in vegetable costs, the most in nearly two years. The price of broccoli, cauliflower and lettuce all fell sharply.

Gas prices have soared this year after falling at the end of 2012. The national average price for a gallon of gas jumped from $3.42 on Jan. 31 to $3.78 on Feb. 28.

Since then, however, gas prices have come down a bit. They averaged $3.70 a gallon Wednesday.

Higher wholesale prices don't always mean consumers will soon pay more. High unemployment and weak pay gains are making it difficult for retailers to pass on higher costs to consumers.

Low inflation means consumers can spend more on other goods and services, which helps the economy. It also gives the Federal Reserve room to keep interest rates low and buy bonds to help boost the economy. If prices were to begin rising rapidly, the central bank might be forced to raise rates to try to slow inflation.

As long as the inflation outlook stays mild, the Fed said it plans to keep the short-term interest rate it controls near zero until the unemployment rate falls to at least 6.5 per cent.