updated 2/18/2010 9:31:09 AM ET 2010-02-18T14:31:09

Wholesale prices shot up at double the expected pace in January, propelled higher by big increases in energy costs. The surprisingly large jump was viewed as a temporary blip and not the start of inflation problems, however.

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The Labor Department said Thursday that wholesale prices rose 1.4 percent last month, reflecting higher costs for gasoline and other energy products. Private economists had expected a 0.7 percent increase.

Core inflation at the wholesale level, which excludes energy and food, rose 0.3 percent in January, faster than the 0.1 percent increase economists had predicted.

But over the past 12 months, core prices at the wholesale level are up a moderate 1 percent. Economists believe that inflation is not a problem at the moment and is not likely to become a threat any time soon because of all the downward pressures on wages and prices as a result of the recession.

Paul Ashworth, senior U.S. economist at Capital Economics, said the prolonged recession has acted to dampen a broad range of prices. He noted that a year ago core wholesale prices were rising at 12-month rates that were as high as 4.2 percent, compared to the 1 percent increase currently.

Because of this slower rise in wholesale prices, Ashworth predicted that consumer prices will show a marked deceleration in the coming year.

The 1.4 percent overall rise in the department's Producer Price Index in January was the biggest gain since a 1.5 percent increase in November. Wholesale prices had risen 0.4 percent in December.

Over the past 12 months, wholesale prices are up 4.6 percent, the largest 12-month increase since a 5.2 percent rise in the 12 months ending in October 2008. But the price pressures are coming primarily from big increases in the cost of energy.

The country has lost 8.4 million payroll jobs since the downturn began in December 2007 and those job losses plus fears of further layoffs have kept a lid of wage pressures. The weak growth in incomes means that consumer demand has suffered, preventing companies from raising the prices they charge for their products.

In another report Thursday, the Labor Department said that the number of newly laid-off workers filing claims for unemployment benefits jumped to 473,000 last week, an increase of 31,000 over the previous week. Economists had expected a decline and the large increase served notice that the labor market is still facing serious problems.

The wholesale price report showed that energy prices rose 5.1 percent last month, the biggest gain since energy prices rose 5.6 percent in November. The January increase was led by a 11.5 percent advance in gasoline prices and a 16.2 percent increase in the cost of home heating oil.

Food prices rose 0.4 percent in January following a 1.3 percent jump in December. Last month, the price increases came in meat, up 3 percent, processed poultry, up 2.3 percent and milk products, which rose 1.7 percent.

Even with the 1.4 percent rise in the PPI for January, economists believe that inflation will not represent a threat to the economy through the rest of this year given their expectations that the unemployment rate is going to remain elevated, keeping a lid on wage pressures.

The absence of inflation pressures has allowed the Federal Reserve to keep interest rates low in an effort to spur economic growth.

The central bank released the minutes of its Jan. 26-27 meeting on Wednesday. At that meeting, Fed officials kept the target for the federal funds rate, the interest that banks charge on overnight loans, at zero to 0.25 percent, where it has been since December 2008. They repeated their pledge to keep rates "exceptionally low" for an "extended period."

Federal Reserve Chairman Ben Bernanke suggested in comments last week that the Fed was still months away from raising rates.

Many private economists believe that the Fed's first rate increase will not come until the second half of this year and some believe the central bank could keep rates unchanged for the entire year, given the absence of inflation and what they believe will be a sluggish recovery.

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