Wholesale prices rise by 0.5 percent in June

WASHINGTON - Wholesale prices rose by a larger-than-expected 0.5 percent in June but core inflation, excluding food and energy, edged up just 0.2 percent.

The Labor Department also reported Tuesday that wholesale food prices increased 1.4 percent last month, with prices for processed chickens jumping 12.1 percent and increases marked by eggs, fresh fruit and dairy products. Wholesale energy prices rose 0.7 percent.

For wholesale prices overall, analysts had been expecting an increase in June of 0.3 percent. Core inflation was in line with expectations.

The 0.5 percent increase followed rises of 0.2 percent in May and 0.9 percent in April.

Concern has permeated the markets that higher inflation will prompt further interest rate hikes by the Federal Reserve and contribute to a more severe economic slowdown.

''Overall, wholesale price inflation continues at a pace that makes the Federal Reserve uneasy, even as economic growth slows,'' said Peter Morici, a professor at the University of Maryland's business school. ''If the Fed acts too vigorously to contain inflation, it risks a recession and stagflation.''

Economic unease deepened last week amid interest rate jitters and escalating violence in the Middle East that carried oil prices to new highs.

On Wall Street Tuesday, the perceived mildness of the wholesale price data - with core inflation up the expected 0.2 percent - helped boost stocks in early trading. In midmorning trading, the Dow Jones industrial average rose 27.29, or 0.25 percent, to 10,774.65.

Analysts will be watching closely a key inflation signpost, consumer prices for June, which will be released on Wednesday, and Fed Chairman Ben Bernanke's testimony before Congress that day.