updated 4/19/2005 8:57:47 AM ET 2005-04-19T12:57:47

Inflation at the wholesale level, propelled by a surge in the price of gasoline and other energy products, shot up 0.7 percent in March, the government reported Tuesday. It was the biggest jump in five months.

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The Labor Department said last month’s increase in its Producer Price Index, designed to track inflation pressures before they reach the consumer, was led by a 3.3 percent increase in energy prices, reflecting soaring global oil prices that have pushed the cost of gasoline for U.S. motorists to around $2.28 per gallon.

However, outside of the volatile energy and food sectors, inflation at the wholesale level rose by just 0.1 percent in March, a moderate gain that was likely to provide assurance to jittery financial markets that inflation is not getting out of control.

In other economic news, the Commerce Department said construction of new homes and apartments fell by a surprisingly sharp 17.6 percent in March to a seasonally adjusted annual rate of 1.84 million units.

That decline was much larger than the 4.8 percent drop that many analysts had been expecting and could signal that the moderate rise in mortgage interest rates is beginning to have an impact on the housing industry.

The 0.7 percent increase in wholesale prices in March was the biggest one-month advance since a 1.5 percent surge last October. Wholesale prices were up 0.4 percent in February and 0.3 percent in January.

For the past 12 months, wholesale inflation has risen by 4.9 percent, the fastest 12-month pace since a gain of 5 percent in the 12 months ending last November.

The surge in energy costs has had an impact on the overall economy in terms of pushing consumer confidence lower and resulting in a lower-than-expected increase in retail sales for March.

Fears that higher energy costs could trigger another “soft patch” in the economy translated into a rough period on Wall Street last week with the Dow Jones industrial average falling by 191 points last Friday, its third consecutive triple-digit decline.

However, the price pressures stemming from rising energy prices so far have not resulted in higher overall inflation. Over the past 12 months, wholesale inflation excluding food and energy has risen by a modest 2.6 percent.

The 3.3 percent jump in energy costs was the biggest advance since a 5.7 percent rise last October. It reflected a 5.3 percent increase in gasoline prices, the biggest jump since a 12.8 percent rise in gasoline prices last October. Home heating oil prices were up 15.7 percent while residentail natural gas prices rose by 2.3 percent.

Food costs were up 0.3 percent in March following a much larger 0.8 percent advance in February. Last month’s increase was driven by a 10.1 percent jump in vegetable prices including big gains for spinach, squash, lettuce, snap beans and tomatoes.

Beef prices were up 1.8 percent while fish prices rose by 4.2 percent and pork prices actually fell lby 4 percent, the biggest one-month drop in this category since May 2002. Fruit prices were also down last month, falling 6.2 percent, led by a 51.6 percent drop in the price of strawberries.

Outside of food and energy, the moderate 0.1 percent advance in the so-called core rate of inflation followed a similar 0.1 percent increase in February.

The price of civilian aircraft rose by 0.9 percent while manufacturing equipment such as tools and molds were up 2 percent. The price of computers fell by 3.4 percent while passenger car prices were down 0.2 percent.

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