Rising Fuel Costs Push Wholesale Prices Up 1.3% : Economy: The August figures reflect a 9.5% jump in energy costs because of Persian Gulf crisis. Both industrial production and retail sales are down.

The first economic shock wave from the Persian Gulf crisis made itself felt in August as energy prices surged 9.5% during the month, pushing inflation at the wholesale level up a steep 1.3%--the steepest rise since January--the government reported Friday.

Although the surge was widely expected--and inflation outside the energy sector of the economy remained relatively moderate--economists cautioned that the economy is probably facing several more months of unusually high inflation as a result of the Persian Gulf situation.

At the same time, two other government measures showed that the economy is continuing to weaken.

The Federal Reserve Board reported that the nation’s industrial production edged down by 0.2% during August after remaining flat the previous month. And the Commerce Department disclosed that retail sales plunged by 0.6% for the month--mainly because of a 4.3% decline in auto sales--after falling 0.4% in July.

President Bush expressed concern at the sharp jump in wholesale prices. When asked about the fuel price increases as he left the White House to begin a weekend at Camp David, Md., Bush declared: “Any time you have price inflation--sudden inflation--it is a matter of concern, given the state of the economy.”

At the same time, he cautioned that the increases in August were based mainly on speculation about the possibility of shortages in coming months and did not reflect existing supply bottlenecks.

“That speculative atmosphere belies the reality, which is that there are sufficient petroleum products so that the market should not be going for higher prices,” Bush said. “In other words, it’s speculation,” he told reporters.

In briefing reporters, White House Press Secretary Marlin Fitzwater had a similar message. After conceding that the August fuel price increase “causes us concern,” he said the Administration is “following it very closely, and we’ll see how this stretches out over the months ahead.”

“Hopefully, as the disruption levels out and we get some stability back in the markets, these will drop,” he added, referring to the energy price increases. “But right now that’s not the case.”

Private economists expressed similar views. “It could have been worse, and it will be worse,” said Donald Ratajczak, an inflation specialist at Georgia State University. He said the impact of the oil-price hikes “will take several months . . . to work through.”

David Wyss, an economist at DRI/McGraw Hill in Lexington, Mass., said: “We all knew about it, and it should be no surprise to anyone. But it’s not just a one-time thing. It will feed through in September and October as well.”

Economists are now routinely asserting that the economy has entered a recession, and the August drop in retail sales provided added weight for such assessments.

Wyss cautioned, in effect, that the higher inflation will only weaken the economy further by causing consumers to cut back their spending. “They are scared and not buying, and we don’t see higher oil prices showing up in higher wages,” he said.

It is also likely to heighten the dilemma facing the Federal Reserve Board, which is trying to steer a middle course designed to combat inflation pressures without throwing the economy into a recession.

The Bush Administration has demanded that the Fed ease credit further, but the central bank so far has balked on the grounds that it might only exacerbate inflation by scaring the financial markets and sending interest rates higher.

Analysts said Friday’s reports--both on prices and on the weakening of the economy--are likely to push the central bank closer to easing credit after all.

At the same time, many analysts contend that, if inflation continues to increase this sharply, the economy could face a fairly steep recession--possibly deep enough to blunt the inflation.

“This inflation won’t last long, because the economy is already in recession,” said Irwin L. Kellner, economist at Manufacturers Hanover Trust Co. in New York.

“Oil is mostly a nondiscretionary item; people have to pay for fuel oil and gasoline, so they have less left over to spend elsewhere,” Kellner said.

That August decline in retail sales occurred despite a 6.4% increase in gasoline sales--again, the result of higher oil prices stemming from the gulf crisis--that was the largest rise in 11 years.

Friday’s report on prices was dominated by the rise in energy prices. Wholesale gasoline prices soared 16.9%, reversing a 5.3% decline in the previous month. Wholesale prices of home heating oil bolted 38.8%, the largest increase ever recorded.

But there were also sharp increases in other areas. Wholesale food prices, for example, rose 0.8% in August.