Consumers got a dose of bad inflation news from the government yesterday, but it was already visible at the gas pump: Higher gasoline costs pushed up producer prices in September and accounted for almost the entire increase in retail sales recorded last month.

Moreover, experts said, there were signs amid the numbers that core inflation, excluding energy and other volatile items, was still on the rise. Without some softening on price increases, the Federal Reserve is unlikely to ease its credit policy and reduce interest rates to try to keep the economy from falling into a recession.

The producer price index rose 1.6 percent from August to September, the largest increase in nine months. Gasoline costs at the producer level rose 20.6 percent, the largest increase ever recorded, the Bureau of Labor Statistics said.

Retail sales went up 1.1 percent last month, the Commerce Department said, to a seasonally adjusted $151.2 billion. Because retail sales are reported without adjustment for inflation, the September rise was seen as largely resulting from higher gasoline costs.

Sales at gasoline service stations rose 4.9 percent. Were it not for gasoline, retail sales would have risen only 0.8 percent last month -- and much of that due to incentive-driven auto sales, which are not expected to continue.

Experts said the Middle East crisis could be expected to continue to push gasoline prices up for at least the next month or so.

"U.S. oil prices, especially for gasoline, are still below the world price level," said Theodore R. Eck, chief economist for Amoco Corp. "If crude oil prices stay where they are, around the $40 {per barrel} level, there will be more increases in the price of gasoline."

The good news, he said, is that eventually gasoline price increases will slow down if the stalemate in the Persian Gulf continues. And if the situation is resolved, the inflation picture could be eased considerably as gasoline prices fall.

However, the producer price index figures showed that prices still are rising, apart from the influences of the oil shock. Excluding food costs (which fell last month) and energy, the index went up 0.6 percent in September and 3.7 percent from September 1989 to this September.

That is not a frighteningly high rate, but still a good bit higher than the 3.4 percent producer inflation rate of the 12-month period ending in August, and not considered low enough to induce the Fed to lower interest rates.

"The inflation picture is still deteriorating... . This is the first time {during the eight-year-old economic expansion} that inflation and interest rates have not followed an apparent slowing of the economy. That seemed to be the trend even before the oil price spike," said Alan Levenson of the WEFA Group, a forecasting firm.

Oil companies report they are seeing a slight decline in gasoline demand because of higher prices, although they say it is difficult to quantify. In addition, some drivers have reacted to the higher prices by shifting to lower grades of gasoline from higher-priced blends such as super-premium.

Many oil economists believe the long-term effect of higher oil prices on demand will be limited because the average car gets twice as many miles per gallon as the average car 15 years ago. And adjusted for inflation, gasoline still is a bargain relative to its price during the oil crises of 1973 and 1979.

However, Stephen D. Pryor, general manager of planning and financial analysis at Mobil Corp.'s marketing and refining division in Fairfax, estimates that gasoline demand will fall 2.5 percent if crude prices stay at or above $35 a barrel for an extended period.

Staff writer Mark Potts contributed to this report.


Monthly change........Sept......Aug.

Finished goods......+1.6%.......+1.3%


Crude goods.........+4.6%.......+9.3%


SOURCE:Bureau of Labor Statistics