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Wholesale Prices Up A Whole Point

Inflation at the wholesale level increased by the largest amount in nine months in July, reflecting the hit consumers are taking at gas pumps.

The Labor Department reported that its Producer Price Index, which measures price pressures before they reach the consumer, jumped by 1 percent in July, the biggest advance since a 1.5 percent increase last October.

The report on wholesale prices depicted many of the same price pressures shown in the 0.5 percent increase in consumer prices reported on Tuesday. However, the wholesale report showed that the core rate of inflation, excluding energy and food, rose by a worrisome 0.4 percent in July, the biggest increase since January.

Core inflation at the retail level rose by a much more modest 0.1 percent in July. The biggest difference in the two reports was in the measurement of new car prices. Car prices fell by 1 percent in the report on inflation at the consumer level while car prices were up 1.5 percent in the wholesale price report.

Analysts explained the difference by saying that the wholesale report, which measures inflation at an earlier stage in the supply chain, caught the introduction of attractive incentive offers in June while the consumer price report did not pick up those sales incentives until the July report.

The wholesale price report showed that energy prices rose by 4.4 percent in July following a 2 percent increase in June.

Gasoline prices were up 10.9 percent, the biggest surge since a 12.8 percent rise last October. Analysts caution that motorists should be braced for another large increase in gasoline costs in August, reflecting the fact that gasoline prices have continued to rise in recent weeks as oil prices have surged above $66 per barrel.

The government reported Monday that the average nationwide price for gasoline rose to $2.55 per gallon in its latest survey, up 18 cents per gallon in just one week. Diesel and jet fuel posted similar gains.

"Whether the fundamentals justify it or not, there's a lot of money going into the oil business, a lot of money going into investing and we'll probably run up for another 30 or 40 days here," Kloza said on

. "We've got about five or ten or 15 cents a gallon just to catch up with what has happened in the global market."

"Anyone that thinks these prices don't have consequences really needs to rethink that," Kloza added.

Other analysts, however, believe that this year's oil shock will not push the country into a recession like the oil shocks of the 1970s and 1980s did because of different circumstances this time around. They contend that this year's oil shock is coming at a time of low inflation pressures outside of energy, which means that the Federal Reserve will not feel the need to aggressively raise interest rates to fight widespread inflation.

The PPI report showed that food costs at the wholesale level fell for a fourth consecutive month, dropping by 0.3 percent in July as the costs of fresh vegetables, fruits and beef all declined. That could change soon, though, with the current Midwest drought.

The lack of water is hitting the Midwest corn crop especially hard. Missouri farmer Mike Henry told

that by this time of year, his corn stalks should be towering tall enough for a farmer to get lost in, but they're less than half that size this year. "Corn is usually 12 to 14 feet tall." But the stalks in his fields are five to six feet high.

Over the past 12 months, wholesale prices have risen by 4.6 percent while the core inflation rate, excluding food and energy, has risen by a more modest 2.8 percent.

Computers were one area where prices continued to decline, falling 2.1 percent in July.

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