updated 2/17/2006 8:43:37 AM ET 2006-02-17T13:43:37

Prices at the wholesale level rose moderately in January as a big drop in gasoline costs helped to offset price increases in other areas.

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The Labor Department reported that wholesale inflation rose by 0.3 percent in January, just half the 0.6 percent surge in December, reflecting a calming of energy prices. However, core inflation, which excludes volatile energy and food prices, jumped by 0.4 percent in January, the biggest one-month rise in a year.

The acceleration of underlying inflation pressures is certain to attract attention at the Federal Reserve. New Chairman Ben Bernanke told Congress this week that one of the major risks to the economy was the possibility that last year’s big surge in energy prices could start to spill over into more widespread inflation pressures.

The 0.4 percent rise in core prices was the biggest increase since a 0.6 percent jump last January and followed small 0.1 percent increases in November and December.

Last month’s acceleration reflected higher prices for new cars and light trucks, pharmaceutical products, books and civilian aircraft.

The overall 0.3 percent rise in the Producer Price Index, which measures inflation pressures before they reach the consumer, was the smallest change since a 0.4 percent drop in November. That decline had followed huge increases in September and October as energy prices soared in the wake of hurricanes which disrupted production along the Gulf Coast.

Bernanke, delivering his first monetary report to Congress since taking over as Fed chairman from Alan Greenspan on Feb. 1, said the economy should expand at a solid pace this year with inflation staying moderate.

However, he said that one of the risks to that forecast was the possibility that inflation pressures will increase if the big jump in energy costs seen last year begins to spread to other areas of the economy.

Bernanke’s comments were seen by financial markets as a strong signal the central bank, which has already raised interest rates 14 times since June 2004, will push rates up by another quarter-point at its March 28 meeting and may boost rates again at the May 10 meeting to make sure inflation does not get out of hand.

For January, overall energy prices were unchanged after a sharp 2 percent jump in December.

Gasoline costs actually declined by 3.5 percent, the biggest drop since November. However, that decline was offset by a record 3 percent surge in residential electric power prices.

Food prices at the wholesale level posted a modest 0.2 percent gain following much bigger increases of 0.8 percent in December and 0.6 percent in November. The price of chickens and fresh fruit fell while prices for vegetables and soft drinks were up.

For all of 2005, wholesale prices rose by 5.4 percent, the biggest gain since a 5.7 percent rise in 1990, another year when energy prices were surging. Excluding food and energy, core inflation at the wholesale level was up 1.7 percent, even lower than a 2.3 percent rise in core prices in 2004.

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