Inflation at the wholesale level surged in February, pushed higher by a big jump in energy prices and the largest increase in food costs in more than three years.
Wholesale prices rose by 1.3 percent last month, the biggest increase since last November, the Labor Department reported Thursday. And even more worrisome, prices outside of the volatile food and energy sectors also showed a bigger-than expected increase of 0.4 percent last month. Toy prices rose at the fastest rate in more than two decades.
Separately, the Labor Department reported that the number of Americans filing claims for unemployment benefits dropped by 12,000 to 318,000 last week. It was the second consecutive weekly decline and a welcome development after big increases earlier in the year had raised concerns about the health of the labor market.
Financial markets have been roiled in recent days by worries that growing troubles with lenders who specialized in subprime mortgages — loans offered to people with weak credit or low incomes —could drag down the overall economy.
Investors were hoping that if the economic drag became bad enough, the Federal Reserve would start cutting interest rates to give the economy a boost. However, if the higher wholesale prices show up in rising retail prices paid by consumers, the Fed would be reluctant to cut interest rates for fear of fanning inflation.
The 1.3 percent jump in wholesale prices was more than double the 0.5 percent rise that analysts had been expecting.
It was driven by a 3.5 percent jump in energy costs, which followed a 4.6 percent drop in January. The price of gasoline was up 5.3 percent in February and more pain at the pump is expected. The Lundberg Survey said that the nationwide average for gasoline has risen by 20 cents per gallon in just the past two weeks, hitting $2.55 per gallon in the latest survey.
The government’s Producer Price Index, which measures price pressures before they reach the consumer, showed that food costs shot up 1.9 percent in February, the biggest one-month gain since October 2003. The increases reflected freezes in winter growing areas, which pushed up the price of fruits and vegetables.
Core wholesale prices, which exclude food and energy, were up 0.4 percent, the biggest increase since November and double what Wall Street had been expecting.
In this area, the cost of toys and games rose by 2.3 percent, the biggest increase since February 1983.
The cost of light trucks, the category that includes sport utility vehicles, rose by 1.7 percent, the biggest gain since November, but the price of new passenger cars fell by 1.2 percent.
The Federal Reserve meets next Tuesday and Wednesday to consider its interest rate policies. The expectation is that the central bank will leave interest rates unchanged, a stance it has taken since it last boosted rates in June of last year, capping a two-year drive to push rates higher as a way of slowing the economy and combating rising inflation pressures.