Core inflation higher at wholesale level

NEW YORK (CNNMoney.com) -- Inflation at the wholesale level met most estimates in February, the Labor Department said Tuesday, but core inflation, which excludes food and energy, rose more than expected.

Wholesale prices rose 0.3% last month, in line with the 0.3% expected by a consensus of analysts polled by Briefing.com.

Minus food and energy, wholesale inflation rose 0.5%, an increase from the 0.4% reported for January. Analysts had predicted an increase of just 0.2%.

The Labor Department's Producer Price Index is a key measure of price inflation.

"The PPI is showing continued pressure on commodity prices," said Ethan Harris, Lehman Brothers' chief U.S. economist. "U.S. goods are competing with imports that are rising in cost."

Energy prices rose 0.8%, slower than the 1.5% growth recorded in January, the wholesale report said. The prices for unleaded gasoline rose 2.8%, while home heating oil turned downward.

Prices for natural gas rose 5.7% after growing only 0.7% in the previous month.

Food prices, which had jumped 1.7% in January, fell 0.5%, the biggest decline since May 2007. The cost of vegetables fell a full 15.7% compared to only 1% a month earlier.

Harris said he expected wholesale prices to turn weaker by the middle of the year.

Price inflation usually lags behind changes in manufacturing activity, he said. "The seeds of a big slowdown are being planted."

The U.S. economy is "in the beginnings of a manufacturing recession," said Harris, referring to reports that show manufacturing activity has started to decline through February.

A report from the Institute for Supply Management showed that manufacturing activity reached its lowest level in almost five years.

"If you look further out ahead, this is the last gasp of the boom in goods prices," he added.