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updated 10/14/2010 10:58:02 AM ET 2010-10-14T14:58:02

Rising food and energy prices pushed inflation at the wholesale level up twice as fast as expected last month, and prices excluding those staples rose at the fastest annual pace in a year, data released by the Labor Department showed on Thursday.

The overall producer price index rose 0.4 percent in September and the core index, which excludes volatile food and energy prices, rose 0.1 percent in the month. Economists polled by Reuters had expected overall prices to rise just 0.2 percent and the core producer price index to rise 0.1 percent in September.

Separately, the U.S. trade deficit widened sharply in August, reflecting a surge in imports of consumer products as businesses restocked their shelves in hopes of a pickup in consumer demand.

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The politically sensitive deficit with China climbed to an all-time high, a development that was certain to increase pressure on the Obama administration to take a tougher line on trade issues including China's tightly controlled currency.

Wholesale prices over the past year also rose faster than expected. Overall prices rose 4.0 percent from a year ago, compared to a 3.7 percent forecast. Core prices rose 1.6 percent over the past 12 months, the fastest pace since September 2009 and slightly faster than the 1.5 percent expected pace.

The Labor Department said food costs rose 1.2 percent in September after falling 0.3 percent in August. Energy prices rose 0.5 percent in September after rising 2.2 percent in August.

The Commerce Department said Thursday the deficit in August increased 8.8 percent to $46.3 billion. Exports edged up a slight 0.2 percent but this increase was swamped by a 2.1 percent jump in imports.

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So far this year, the trade deficit is running at an annual rate of $502.5 billion, up 34 percent from the $374.9 billion deficit for all of 2009, which had been the smallest imbalance since 2003.

Last year's deficit was just half the total of the previous year and reflected the country's deep recession, which cut sharply into demand for imports. Economists had expected the deficit to rise this year but had forecast that a rebounding global economy would also boost demand for exports.

In the April-to-June quarter, the surge in imports swamped the rise in exports. Trade was the biggest drag on the economy during the spring, subtracting 3.5 percentage points from growth. As a result, the overall economy, as measured by the gross domestic product, grew at just 1.7 percent in the second quarter, down from growth of 3.7 percent in the first three months of the year.

Economists believe trade will be less of a drag on GDP in the July-September quarter.

The Associated Press and Reuters contributed to this report.


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