Inflation Surges 1.6% in Month; Gas Price Soars

WASHINGTON — Wholesale prices soared 1.6% in Sept-

ember--an annual rate of more than 20%--as gasoline prices shot up at their fastest pace on record, the government reported Friday.

“The oil shock is hitting with a vengeance. . . . It’s just one more jolt to an already fragile economy,” said Robert Dederick, chief economist at the Northern Trust Co. of Chicago.

“This is the start of the wave of double-digit inflation we will have to suffer through for the next quarter or two because of Iraq,” said Allen Sinai, chief economist at the Boston Co. “It’s going to propel an economy that’s already in recession into a deeper recession.”

While the Labor Department blamed much of the steep increase in wholesale costs one step short of the retail level on costlier petroleum, prices excluding the volatile energy and food areas were still up a worrisome 0.6%--twice the August gain.

The 20.6% rise in the cost of gasoline was the highest one-month increase since the government began tracking the commodity in 1947.

At the earliest stage of the production process, crude oil prices rose 20.4%, fueling analysts’ concern that the higher prices will begin affecting the thousands of plastic, chemical and other products made with petroleum.

Oil also shows up in utility costs and figures in prices for products that must be transported long distances.

In a separate report, the Commerce Department said retail sales jumped 1.1% last month, to a seasonally adjusted $151.2 billion, and were bolstered by the soaring cost of gasoline and a partial recovery in auto sales. Excluding gasoline, sales rose 0.8%.

Analysts say the combination of higher prices and stronger consumer spending deepens the dilemma for the Federal Reserve, which has been under pressure from the Bush Administration to ease its inflation-fighting campaign and lower interest rates to spur the economy.