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Key factor measuring inflation is rising

A key measure of wholesale inflation rose in July by the most in six months.

The measure, called core wholesale inflation, excludes volatile food and energy prices. It surged 0.4 percent last month.

But most economists say they aren't concerned about the increase. One reason is that it was driven largely by costlier tobacco products and pickup trucks, which economists say are probably one-time events.

Raw material prices also fell in July. Those figures should lead to lower wholesale prices in coming months.

And the costs of components are rising more slowly than the costs of the finished goods calculated in the inflation measure.

The Federal Reserve and private economists tend to focus on core inflation. It's seen as a better predictor of price changes than overall inflation is.

Higher wholesale prices tend to raise pressure on department stores, groceries and restaurants to pass along higher costs to consumers. But that will be difficult now at a time of high unemployment and stagnant wages, which have caused consumers to tighten spending.

Combined with falling oil and gas prices, lower consumer spending should slow inflationary pressures, economists say.

Wednesday's Labor Department report on the Producer Price Index reflects price changes in goods before they reach consumers. The overall index, which includes energy and food, rose 0.2 percent in July. That follows a 0.4 percent drop in June, the first decline in 17 months.

Gas prices fell for the second straight month. Food costs rose by the most since February.

Tobacco prices, which are affected by seasonal factors, jumped 2.8 percent. That was the largest increase in more than two years.

Truck prices rose 1 percent. But that mostly reflects supply shortages stemming from Japan's earthquake.

"Overall, these data do little to alter our belief that most of the recent surge in core consumer price inflation is temporary and that it will fall back next year," said Paul Dales, senior U.S. economist with Capital Economics.

Over the past 12 months, the PPI has jumped 7.2 percent. That's up sharply from earlier this year, though below May's 7.3 percent rise, the biggest in 2 1/2 years. The core index has risen 2.5 percent in the past 12 months, the most since June 2009.

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