Producer prices soar 1.8% in June

The economy showed the depth of its twin problems of slow growth and rising inflation Tuesday, as the nation wrestled with a teetering financial system, a slumping dollar and rising prices for food and fuel.

The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8% in June, leaving inflation rising over the last year at the fastest pace in more than a quarter-century.

Over the last 12 months, wholesale prices are up 9.2%, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains. Core inflation, which excludes energy and food, was better behaved in June, rising 0.2%, slightly lower than expectations.

A separate report from the Commerce Department showed that all the economy’s problems were weighing on the consumer. Retail sales edged up 0.1% in June, weaker than had been expected, as consumer spending was held back by a sharp plunge in sales at auto dealerships.

In a third economic report, the Commerce Department said business inventories rose at a slower-than-expected pace in May, a possible indication that the weakening economy was making companies cautious on their restocking plans.

The department said inventories held on shelves and backlots edged up 0.3% in May, smaller than the 0.5% gain that many economists had been expecting. It was the smallest monthly increase since inventories had risen just 0.2% in April.

Many economists are worried that a host of problems from a lengthy slump in housing to a severe credit crunch could push the country into a recession. But so far, the overall economy, as measured by the gross domestic product, has stayed in positive territory, helped in part by companies rebuilding their inventories.

For June, energy prices at the wholesale level shot up 6%; the price of regular gasoline surged 9% after an even bigger 9.6% increase in May.

The 0.1% rise in retail sales was even weaker than the 0.4% gain that analysts had been expecting. That small rise reflected a 3.3% drop in sales at auto dealerships, offsetting a big 4.6% jump in sales at gasoline stations.