Wholesale prices spike on steep rise in food, oil

Meat and dairy costs rose partly because of the 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.

Associated Press

Meat and dairy costs rose partly because of the 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.

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 increase. Tomatoes, green peppers and lettuce all more than doubled in price.

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.'s Food and Agriculture Organization said world food prices have 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. In Florida, the average for regular unleaded was $3.579, while it was $3.525 in the Tampa Bay area.

Wholesale prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.

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.

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.

Housing starts sag

Builders broke ground last month on the fewest homes in almost two years and cut their requests for permits to start new projects to a five-decade low. Home construction plunged 22.5 percent in February from January to a seasonally adjusted 479,000 homes, the Commerce Department said Wednesday. It was the lowest level since April 2009 and the second-lowest on records dating more than a half-century. Building permits, an indicator of future construction, fell 8.1 percent last month to the lowest level on records dating to 1960.

Producer Price Index | It all costs more

1.6 percent: rise in Producer Price Index in February, the biggest increase since June 2009.

3.9 percent: Increase in food prices last month, the biggest gain since November 1974.

1.0 percent: February's rise in wholesale prices for apparel, the most in 21 years.

Wholesale prices spike on steep rise in food, oil 03/16/11 [Last modified: Wednesday, March 16, 2011 9:45pm]

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