(AFP) – Apr 15, 2008

WASHINGTON (AFP) — Surging energy and food costs stoked US wholesale prices by much more than expected in March, according to a government report Tuesday that renewed fears about accelerating inflation.

The Labor Department released its latest inflation snapshot as concern mounts about rocketing global commodity prices which have pushed food prices higher.

"Wholesale costs are rising and the consumer should expect more shocks at the supermarket and the gas station," said Joel Naroff, the president of Naroff Economic Advisors.

The monthly Producer Price Index (PPI), which tracks the wholesale cost of goods and food as they leave the factory floor and farm gate, showed prices rising at a much faster clip than in previous months.

The headline PPI reading jumped 1.1 percent in March, mostly due to soaring energy and food prices, and was almost double what most economists had anticipated.

The gain marked the biggest jump in headline PPI since November and occurred as world oil prices continued to strike record peaks.

Economists said increasing wholesale costs are likely to inflate consumer prices and could pinch household budgets which are already being buffeted by a deep housing market slump, a related credit crunch and rising job cuts.

If American consumers have to pay more to drive their cars and put food on the dinner table, it could force them to cut back on other spending and further dent economic growth.

The core PPI reading, which strips out volatile food and energy costs, rose a tame 0.2 percent last month and was in line with most forecasts.

On a 12-month basis, headline PPI inflation was up 6.9 percent while the core rate was 2.7 percent higher.

The United Nations and global policy makers have expressed increased angst about food and energy price spikes in recent weeks.

Basic foodstuff costs have leapt sharply in recent months, sparking violent protests around the globe, including Haiti, Egypt, Cameroon, Ivory Coast, Mauritania, Ethiopia, Madagascar, the Philippines and Indonesia.

World Bank president Robert Zoellick warned over the weekend that a doubling of food prices in the past three years could trigger increased poverty and political problems.

US economists say the Federal Reserve has been more preoccupied with fighting an economic slowdown and averting a possible recession than taming inflation.

The Fed has aggressively slashed short-term interest rates in recent months to 2.25 percent in a bid to fire up economic momentum, but some analysts say it is now walking a delicate tightrope as further rate cuts could spur increased inflation.

"For now the Fed is operating under the assumption that the slowing economy and excess slack will ease price pressures at the core level. Energy and commodity prices are also expected to level off, although there is a high degree of uncertainty to this assumption," economists at Societe Generale said in a briefing note.

US energy prices surged a monthly 2.9 percent in March, marking a dramatic acceleration compared with a 0.8 percent rise in February. Diesel and heating oil price increases were especially pronounced.

Energy costs remained under pressure Tuesday as a key oil futures contract traded in New York briefly struck an all-time intraday high of 113.99 dollars a barrel.

Higher energy costs have impacted wholesale food prices as farmers pay more to fuel their tractors and transport products to market.

Food prices leapt 1.2 percent during March after increasing 0.5 percent in February.

Prices for a range of basic staples have increased in recent months, including wheat, rice and milk.

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