Wholesale Inflation Jumps 0.5% : Economy: Food and energy lead the rise in August. But economists point to tame ‘core’ prices.

WASHINGTON —  Inflation at the wholesale level leaped 0.5% in August, reflecting sharply higher energy and food prices, the government said Friday.

But economists didn’t quake at the news, believing that tame “core” prices, excluding those two volatile sectors, may discourage Federal Reserve policymakers from raising interest rates again in the fall.

The Labor Department said last month’s overall increase in its producer price index--which measures inflation pressures before they reach the consumer--followed a modest 0.2% rise in July. Many analysts had been expecting prices to rise 0.3% in August.

Excluding the volatile energy and food categories, the core rate of inflation at the wholesale level fell 0.1% last month, after being flat in July. Many analysts forecast a 0.1% increase in the core rate and viewed the better-than-expected performance as a sign that inflation is under control.

So far this year, the core inflation rate has declined at an annual rate of 0.4%, compared with a 2.5% gain for all of 1998.

Given the core rate’s decline, said Russell Sheldon, chief economist for MCM MoneyWatch, “the odds are heavily in favor of no tightening move by the Fed in October.”

Paul Kasriel, chief economist for Northern Trust Co., agreed: “This doesn’t give the Fed any ammunition to raise rates at its Oct. 5 meeting.”

Still, economists said that the big increase in overall wholesale prices, if matched at the consumer level, could still stoke inflation concerns at the Federal Reserve.

Some economists were concerned that the rise in the price of materials used in the early phases of production could be a sign of inflation to come.

Prices for crude goods--unprocessed materials such as coal and raw cotton--surged 4.6% in August, while the price of intermediate goods--semi-processed materials such as plywood and textile fabrics, rose a sharp 0.8%, the biggest one-month gain since January 1995.

“There is a case to be made that pipeline inflation pressures are building,” said Ken Mayland, an economist for KeyCorp.

So far this year, overall wholesale prices have been rising at an annual rate of 2.3%, compared with no change for all of 1998. The pickup in this year’s wholesale prices is coming from big increases in the cost of energy, which had been falling for much of 1998.

For August, energy costs rose 3.7%, led by a 9.1% increase in gasoline prices and a 5.3% gain in heating oil prices.