Wholesale inflation slows in April after March increase

The higher food prices have been blamed on a variety of factors from rising global demand to higher energy prices pushing up transportation costs and the diversion of cropland to the production of corn for ethanol rather than food.

The report on the PPI, which measures price pressures before they reach consumers, followed news last week that consumer prices rose by just 0.2 percent in April even though food costs soared by the largest amount in 18 years.

Wholesale energy prices fell by 0.2 percent in April after a 2.9 percent surge in March. The PPI report showed that gasoline costs fell by 4.6 percent although before adjusting for seasonal factors, wholesale gasoline was up 3.2 percent last month.

As with last week's consumer price report, the government's seasonal adjustment process turned big gains in gasoline into declines because the increases were less than what normally occurs in April. That is little comfort for motorists who are now paying record prices. Gasoline hit a new national record with regular averaging $3.80 per gallon on Tuesday, according to a survey by AAA and the Oil Price Information Service.

Crude oil prices spiked to another trading high on Tuesday, approaching $130 per barrel, prompting analysts to predict that motorists will soon be paying more than $4 per gallon for gasoline.

On Wall Street, stocks tumbled as investors grew uneasy about a new record oil price and the bigger-than-expected increase in core wholesale prices. The Dow Jones industrial average fell 199.48 points to close at 12,828.68, its biggest one-day slide since a 206-point drop on May 7.

The increasing price pressures are occurring at the same time the economy has slowed dramatically, increasing worries that the country could be facing another bout of stagflation, the malady that last occurred in the 1970s when successive oil prices shocks sent inflation soaring as growth stagnated.

The Federal Reserve, which has been aggressively fighting the economic weakness and a severe credit crisis with a series of interest rate cuts, signaled in April that it may leave rates unchanged going forward, in part because of worries about inflation.

In a speech Tuesday, Fed Vice Chairman Donald Kohn said he believed the Fed's current policy stance "appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term."