The rising costs of oil and dairy products produced a significant spike in wholesale prices in April, the Labor Department reported today.
The increase of 0.7 percent was the largest increase in a year in the Producer Price Index, which reflects the costs of goods before they hit the stores.
Historically, consumers feel such jumps within about six months.
The April hike exceeded expectations of a 0.3 percent increase, although the escalating prices of oil and dairy products came as no surprise.
Excluding oil and dairy prices -- which are setting records -- the April increase in "core" wholesale prices was a predictable 0.2 percent, the same as the month before.
Milk prices have been rising because the supply of dairy cows in this country is dwindling, and is now at a five-year low. Milk production was high through 2002, so the price of milk plummeted, and some farmers got out of the business while others sold their dairy cattle for meat.
The popularity of high-protein, low-carbohydrate diets increased demand for beef and pushed up prices, making it more profitable for some farmers to turn their dairy cows into hamburger.
The result is that milk production has been down 0.9 percent so far this year, according to the National Milk Producers Federation.
The price of oil is likely to remain high in coming months and could rise further, analysts say, because of high global demand, particularly in China, and petroleum producers' reluctance to boost supplies.
Recent security problems in Saudi Arabia and Iraq have also infected petroleum markets.
Today's wholesale price numbers were among numerous figures in the past few months suggesting an acceleration of inflationary pressures amid the expanding economy.
As such, they reinforced expectations that the Federal Reserve may soon feel the need to increase benchmark interest rates.
Fed policy makers voted unanimously on May 4 to keep the benchmark U.S. interest rate at an almost 46-year low of 1 percent and suggested they will lift borrowing costs at a "measured" pace to head off inflation.
The market-driven price of money, which does not wait for the Fed, is already raising rates. Interest charges for mortgage loans and credit card balances are already on their way up. So are the yields of bonds.
These economic developments, combined with Iraq-related news, have contributed to a sell-off in the stock markets during the past few weeks.