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PPI raises inflation fears
Measure of wholesale prices far above Wall Street's forecasts in July after being unchanged in June.
August 17, 2005: 10:36 AM EDT
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NEW YORK (CNN/Money) - Wholesale prices increased sharply in July, according to a government report that showed inflationary pressures far stronger than Wall Street's expectations.

The Producer Price Index rose 1 percent in July after being unchanged in June. Economists surveyed by Briefing.com had forecast only a 0.5 percent rise in the inflation measure.

The so-called core PPI, which strips out often-volatile food and energy prices, increased 0.4 percent, compared with the 0.1 percent decline in June and above the forecasted gain of 0.1 percent. It was the biggest jump in the closely watched core number since a 0.7 percent rise in January.

Energy prices rose 4.4 percent in July, the biggest jump since a 5.7 percent gain in October, which resulted in the overall PPI also posting its largest gain since that month as well.

Gasoline prices rose 10.9 percent, but businesses also saw other energy prices rise as well, with jet fuel prices spiking up 16.8 percent, industrial natural gas up 7.4 percent and liquefied petroleum gas prices up 5.6 percent.

But a 0.3 percent decline in food prices helped keep the overall PPI in check. It marked the fourth straight month the PPI has shown a decline in food prices.

Bond prices, which had risen Tuesday when the Consumer Price Index showed more modest inflationary pressures, fell following Wednesday's PPI report, lifting the yield on the 10-year Treasury to 4.25 before slipping back to 4.23 percent. It had been at 4.22 percent before the report. Stock futures also fell on the PPI report.

Jason Schenker, economist with Wachovia Securities, said he doesn't think the spike in PPI is enough to get the Federal Reserve to change its course of measured interest rate increases. But it is enough to get economists and investors more worried about inflation than they have been in recent months.

"I don't think the energy prices that have only gone up since this report are some transitory aberration," said Schenker.

For the latest reading on consumer prices, click here.

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