Wholesale Prices Rise More Than Expected

U.S. core producer prices rose at their fastest pace in six months in July, pushed up by higher tobacco and light truck costs, according to a government report on Wednesday that could stoke inflation fears.

The Labor Department said its seasonally adjusted index for prices paid at the farm and factory gate, excluding food and energy, rose 0.4 percent - the largest increase since January - after rising 0.3 percent in June.

That compared with economists' expectations for a 0.2 percent rise.

Overall prices received by producers rose 0.2 percent after falling 0.4 percent in June, above economists' expectations for a 0.1 percent gain.

The Federal Reserve last week promised to keep interest rates near zero for the next two years to stimulate growth, saying the outlook for inflation over the medium-term was subdued.

A spike in food and energy prices pushed up inflation early this year, but weak economic growth and high unemployment kept underlying price pressures contained.

In the 12 months to July, core producer prices increased 2.5 percent, the largest increase since June 2009.

Tobacco accounted for almost a quarter of the rise in the monthly core PPI rate, with light motor trucks and pharmaceuticals also making significant contributions. Light truck prices increased 1 percent, while tobacco surged 2.8 percent, the largest increase since March 2009.

Overall producer prices were bumped up by food costs, which rose 0.6 percent as potatoes recorded their biggest increase in almost a year. Gasoline prices, however, fell 2.8 percent.

In the 12 months to July, producer prices rose 7.2 percent after increasing 7.0 percent the prior month. The rise was above economists' expectations for a 7.0 percent advance.