By Shobhana Chandra April 22 (Bloomberg) -- Wholesale prices in the U.S. rose more than forecast in March, boosted by higher costs for energy and the biggest gain in food since 1984. The 0.7 percent increase in prices paid to factories, farmers and other producers followed a 0.6 percent drop in February, the Labor Department said today in Washington. Excluding fuel and food, so-called core prices rose 0.1 percent for a second month, restrained by cheaper autos and appliances. Inflation may be limited as companies rely on productivity gains to offset higher costs of energy and raw materials. Excess capacity and slow job growth underscore the Federal Reserve’s pledge to keep interest rates close to zero for an “extended period.” “Inflation remains subdued,” said Joseph Brusuelas, president of Brusuelas Analytics in Stamford, Connecticut. Limited price pressure “provides an extraordinary amount of comfort to Fed policy makers. They can stay on hold well into 2011.” Producer prices were forecast to rise 0.5 percent in March, according to the median estimate of 78 economists in a Bloomberg News survey. Estimates ranged from a drop of 0.2 percent to a gain of 1.2 percent. The number of Americans filing first-time claims for unemployment benefits dropped by 24,000 to 456,000 in the week ended April 17, the Labor Department said in a separate report today. The number of people receiving unemployment insurance and those getting extended benefits also fell. Treasury Notes The 10-year Treasury note yielded 3.74 percent at 8:51 a.m. in New York, compared with 3.73 percent yesterday. It dropped earlier to 3.72 percent, the lowest since March 24, as concern Greece will need to tap emergency loans to avoid default boosted demand for the relative safety of U.S. government debt. Prices excluding food and fuel were estimated to rise 0.1 percent for a second month. The cost of food jumped 2.4 percent in March, the most since January 1984. Vegetable prices rose by the most since December 1994 and the cost of fish posted the biggest gain since April 2006. Energy costs increased 0.7 percent last month. Gasoline prices rose 2.1 percent, while costs for heating oil and residential electricity were also higher. Companies paid 6 percent more for goods in the 12 months ended in March, the biggest year-over-year gain since September 2008, after rising 4.4 percent the prior month. The March gain matched the median forecast. Excluding Food Excluding food and energy, wholesale prices increased 0.9 percent in the 12 months ended in March, after a 1 percent gain. Rising energy costs may keep year-over-year comparisons elevated. Crude oil on the New York Mercantile Exchange averaged $81.29 a barrel last month, while in March 2009 it averaged $48.06. Costs for passenger cars fell 1.1 percent, the most since July, and appliances prices dropped 1.4 percent, the biggest decline since August 2000. Producer prices are one of three monthly inflation gauges reported by the Labor Department. Prices of goods imported into the U.S. rose less than anticipated in March. The cost of living index rose 0.1 percent last month, while prices excluding food and energy were unchanged, reflecting cheaper rents and clothing. Iron-Ore Costs AK Steel Holding Corp., the third-largest U.S. steelmaker by 2009 sales, is among companies seeing higher costs for raw materials after reporting a first-quarter profit compared with a loss a year earlier. The West Chester, Ohio-based company said on April 20 that if iron-ore costs jump more than the 30 percent assumed last quarter, it could hurt second-quarter earnings. “AK Steel is firmly on the road to recovery,” James Wainscott, chief executive officer, said in a statement. At the same time, the company said there is “substantial uncertainty with respect to global iron-ore pricing for 2010.” Today’s report showed the cost of intermediate goods, those used in earlier stages of production, rose 0.6 percent in March. Prices for raw materials, or so-called crude goods, increased 3.2 percent. Helping limit inflation are data on capacity utilization. Economists track operating rates to gauge factories’ ability to produce goods with existing resources. The proportion of plants in use rose to 73.2 percent in March, Fed figures showed last week. Capacity averaged 80 percent over the past two decades. Lower rates reduce the risk of bottlenecks that can force prices higher. Janet Yellen, president of the Federal Reserve Bank of San Francisco, said in an April 15 speech that she supported the Fed’s pledge to keep rates low for an “extended period.” “The economy is operating well below its potential, inflation is subdued, and such conditions are likely to continue for a while,” Yellen said. To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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