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WHOLESALE INFLATION SPIKED IN MARCH
BUT CORE RATE STABLE, SO PRESSURE EASING ON FED

WASHINGTON -- Inflation at the wholesale level, propelled by a surge in the price of gasoline and other energy products, shot up 0.7 percent in March, the government reported today. It was the biggest jump in five months.

The Labor Department said last month's increase in its Producer Price Index, designed to track inflation pressures before they reach the consumer, was led by a 3.3 percent increase in energy prices, reflecting soaring global oil prices that have pushed the cost of gasoline for U.S. motorists to around $2.28 per gallon.

However, outside of the volatile energy and food sectors, inflation at the wholesale level rose by just 0.1 percent in March, a moderate gain that was likely to provide assurance to jittery financial markets that inflation is not getting out of control.

The core rate suggests companies are having limited success in passing on higher energy costs, reinforcing forecasts that Federal Reserve policy makers won't step up the pace of interest rate increases as the economy shows signs of slowing.

"There's not the fear of runaway inflation," said Michael Englund, chief economist at Action Economics LLC in Boulder, Colorado. Englund correctly forecast the rise in the core. "This takes the pressure off the Fed to be more aggressive."

In other economic news, the Commerce Department said construction of new homes and apartments fell by a surprisingly sharp 17.6 percent in March to a seasonally adjusted annual rate of 1.84 million units.

That decline was much larger than the 4.8 percent drop that many analysts had been expecting and could signal that the moderate rise in mortgage interest rates is beginning to have an impact on the housing industry.

The 0.7 percent increase in wholesale prices in March was the biggest one-month advance since a 1.5 percent surge last October. Wholesale prices were up 0.4 percent in February and 0.3 percent in January.

For the past 12 months, wholesale inflation has risen by 4.9 percent, the fastest 12-month pace since a gain of 5 percent in the 12 months ending last November.

The surge in energy costs has had an impact on the overall economy in terms of pushing consumer confidence lower and resulting in a lower-than-expected increase in retail sales for March.

However, the price pressures stemming from rising energy prices so far have not resulted in higher overall inflation. Over the past 12 months, wholesale inflation excluding food and energy has risen by a modest 2.6 percent.