010531 Wholesale Prices Rise 0.3 Percent

Washington - Wholesale inflation rose 0.3% in April as gasoline prices took the biggest jump in 10 months. But that didn't keep consumers from going on a shopping spree: Retail sales went up sharply.

The modest advance in the Labor Department 's Producer Price Index , which measures inflation pressures before they reach store shelves, followed a decline in wholesale prices in March, the Labor Department reported Friday.

In another report, retail sales increased by a bigger-than-expected 0.8% in April; many analysts were expecting an increase of only 0.1%. The increase, the biggest in three months, came after retail sales fell by 0.4% in March.

On Wall Street, the Dow Jones industrial average was down 88 points at midday and the Nasdaq index had dropped 14 points.

The April PPI was better than the 0.4% rise many forecasters were expecting. The increase was the largest since wholesale prices shot up by 1.1% in January.

Excluding volatile energy and food prices, wholesale inflation rose 0.2% in April, up from a 0.1% gain in March, and slightly faster than analysts were expecting.

The Federal Reserve slashed interest rates four times this year, totaling 2%age points to prevent the struggling economy from tipping into recession. Economists are predicting another rate reduction when policy-makers meet Tuesday.

While concerned about inflation creep, economists estimate that higher prices for energy and other items are more likely to squeeze companies' profits than be passed along to consumers in the form of higher prices - a difficult undertaking when the economy is weak.

In April, overall energy prices rose a tiny 0.1% after falling by 2.6% in March.

Gasoline prices jumped 7% in April, the largest increase since June 2000, when they rocketed upward by 18.1%.

Over the last two weeks, the average retail price for gasoline in the United States increased 8.58 cents to $1.76 a gallon, according to the Lundberg Survey of 8,000 service stations nationwide. Motorists in the Midwest and West saw the biggest jumps at the pump.

Prices for heating oil and residential electric power rose 2.1% and 0.2%, respectively, in April. But residential natural gas prices, which have soared, actually fell by a record 4.3%, surpassing the previous biggest monthly drop of 4% in March. Still, even with the decrease, natural gas prices remain high.

Food prices, meanwhile, rose 0.6% in April, on top of a whopping 1.1% increase in March. Price increases were widespread, with eggs, dairy products, fish, chicken, pork and fruit all showing gains. Those increase swamped falling prices for coffee and vegetables.

Elsewhere in the report, prescription drugs rose 0.5% reflecting increased demand by aging baby boomers and the introduction of newer, more expensive drugs, economists say.

Car prices edged up 0.2%. Computer prices jumped 1.5%, a record increase, exceeding the previous monthly all-time high gain of 0.7% posted in September 1993.

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