Wholesale Prices Drop in February

WASHINGTON â€”  A huge drop in energy costs helped push prices at the wholesale level down last month by the largest amount in nearly three years. But with the cost of gasoline rising again, the reprieve could be short-lived.

The Labor Department reported Tuesday that wholesale prices fell 1.4% in February as food and energy recorded big declines.

But analysts cautioned against reading too much into the February decrease, saying it was heavily influenced by a warmer-than-normal winter, which cut demand for home heating fuel and helped energy producers rebuild inventories that had been depleted after last fall’s hurricanes.

The government reported Monday that the average retail price of gasoline soared 13.8 cents last week to $2.50 a gallon for regular grade. Gasoline futures are up 42 cents a gallon since mid-February.

The drop in the overall producer price index was much larger than Wall Street had expected. It followed a report last week that the closely watched consumer price index edged up a tiny 0.1% in February after a 0.7% jump in January.

Outside of energy and food, core prices at the wholesale level rose 0.3% last month, a bigger increase than the 0.1% economists had expected.

Mark Zandi, chief economist at Moody’s Economy.com, said he believed core inflation at the consumer level, which last year was 2.2%, would be about 2.5% this year.

Increasing labor costs, reflecting a stronger job market, and an expected weaker dollar, which will drive up import prices, will contribute to pushing core inflation higher, he said.

The Federal Reserve, which would prefer to keep core consumer prices rising at about 2%, will be closely watching the increase in inflation pressures, Zandi and other economists predicted.

The central bank will hold its first interest-rate-setting meeting with Ben S. Bernanke as its chairman Monday and Tuesday.

Analysts believe that they will vote for the 15th straight quarter-point increase in the federal funds rate, the interest that banks charge one another, since policymakers began tightening credit nearly two years ago.

The retreat in wholesale prices in February was the largest one-month decline since a 1.4% plunge in April 2003.

Gasoline prices were down 11%, the biggest drop in nearly three years, while natural gas prices fell 4.1% and liquefied petroleum gas, used for heating homes, dropped 14.3%.