Prices at the wholesale level rose a modest 0.2 percent in July as a huge jump in energy prices overwhelmed a sharp drop in food costs, the Labor Department said Friday.
The increase in the Producer Price Index, which measures inflation pressures before they reach the consumer, matched the 0.2 percent rise in May. Wholesale prices had actually fallen 0.1 percent in June, only the second decline this year.
July's increase was slightly better than expected. Many analysts had been anticipating that prices would rise 0.3 percent in July.
The moderate advance in wholesale prices, if matched at the consumer level, could ease concerns somewhat at the Federal Reserve about a potential breakout of inflation.
However, many analysts and investors still are worried that the central bank will raise interest rates for a second time this year on Aug. 24. Their fear is that the economy is still growing too strongly and could spark inflation down the road.
So far this year, wholesale prices have been rising at an annual rate of 1.7 percent, compared to no change at all for all of 1998. The pickup in this year's wholesale prices is coming from big increases in energy costs, which had been falling for much of 1998.
For July, energy costs rose 3.4 percent, led by a hefty 12.7 percent increase in gasoline prices, an advance that motorists felt at the pumps last month.
The July gain in gas prices was the largest since a 26 percent surge in April, which helped push overall wholesale prices up by 0.5 percent in April, the biggest increase this year. That gain plus an even sharper rise in consumer prices in April put the Fed on inflation alert and led to a June 30 increase in a key Fed interest rate, the first hike in two years.
Gasoline prices had reached their highest point in more than 18 months in July partly because of production cuts by the Organization of the Petroleum Exporting Countries, as well as a pickup in demand from recovering economies in Asia and Latin America.
But a nationwide check of gasoline stations by the Lundberg Survey has shown a slowing in the rate of price increases at the pump in the last two weeks.
The 3.4 percent rise in energy costs in July was partially offset by a 0.9 percent drop in food prices. Beef prices, which had risen sharply in June, declined by 3.4 percent in July, the biggest one-month drop since February 1997.
Excluding the volatile energy and food categories, wholesales prices were unchanged in July, after having fallen 0.2 percent in June.
Outside of food and energy, inflation was kept in check by a 0.2 percent drop in the price of new cars.