WASHINGTON - UNITED States producer prices rose by a smaller-than-expected 0.2 per cent last month after petrol prices sank, according to government data, but core inflation at the producer level posted a larger advance.

Core producer prices, which strip out volatile energy and food costs, increased by 0.4 per cent. That was twice the rate that had been forecast.

Core producer prices over the last 12 months rose 3 per cent, the largest gain since December 1991.

Petrol prices at the producer level fell 4.6 per cent, but they were up 23 per cent over the past year. Overall producer prices were up 6.5 per cent on a year-on-year basis.

Food prices were unchanged last month, although within that category, the price of rice jumped by 17.4 per cent, the largest rise since 1993.

Soaring energy costs have buoyed producer prices and spilled into broader measures of inflation in a worrying fashion for the Federal Reserve, even as it has slashed interest rates to buffer growth from the US housing crisis.

‘Nothing here bodes well for consumers. We are not going to see an easing any time soon,’ said Mr Joel Naroff, the president at Naroff Economic Advisors in Pennsylvania. ‘It’s putting more pressure on businesses to raise their costs. This is problematic in the economic slowdown we are in right now.’

Even as producer prices rose, crude oil surged above US$129 a barrel in New York for the first time after billionaire hedge fund manager T. Boone Pickens said oil would reach US$150 a barrel this year.

Prices will climb because supply is not keeping up with demand, Mr Pickens, the founder and chairman of Dallas-based BP Capital, told CNBC.

Oil advanced last Friday when Goldman Sachs boosted its estimate for the second half of the year from US$107 a barrel to US$141, citing supply constraints.

‘There is so much momentum in the market that it doesn’t take much for prices to reach new records,’ said Mr Brad Samples, a commodity analyst for Summit Energy in Kentucky.

Oil prices also rose because the dollar weakened against the euro, prompting investors to buy commodities as a hedge against the currency’s decline.

REUTERS, BLOOMBERG