July 15 (Bloomberg) -- Prices paid to U.S. producers rose for a sixth month in June, pushed up by surging fuel costs that underscore risks of inflation.

The 1.8 percent increase was the biggest gain since November and followed a 1.4 percent jump the prior month, the Labor Department said today in Washington. So-called core producer prices that exclude fuel and food increased 0.2 percent, less than economists forecast.

Higher prices for fuel and raw materials cut into corporate profits and pressure them to raise prices. Federal Reserve policy makers, who have paused in their steepest rate cuts in two decades, last month said ``upside risks'' to inflation had increased and they would act ``as needed'' to foster both stable prices and growth.

``It was primarily confined to the energy sector,'' said Lindsey Piegza, an analyst at FTN Financial in New York, which correctly forecast the rise in the core rate. ``There is risk that in the future they could seep through and cause an inflationary spiral, but right now inflation is going to take a back seat to the slowing economy'' on the list of Fed concerns.

Separately, the Commerce Department reported that retail sales rose 0.1 percent in June, less than economists forecast, and down from a 0.8 percent gain in May. Purchases excluding gasoline dropped.

The Dollar

The dollar fell 0.5 percent to $1.5993 per euro at 8:35 a.m. in New York, from $1.5908 yesterday, and touched $1.6038, the weakest level since the 15-nation currency's debut in 1999. Standard & Poor's 500 Index futures expiring in September lost 13.3 points, or 1.1 percent, to 1,215 at 8:38 a.m. in New York. Dow Jones Industrial Average futures retreated 116, or 1.1

Prices paid to factories, farmers and other producers were forecast to rise 1.4 percent, according to the median of 77 forecasts in a Bloomberg News survey. Estimates ranged from gains of 0.5 percent to 2.9 percent.

Core prices were projected to rise 0.3 percent, according to the survey median.

Fed Chairman Ben S. Bernanke is scheduled today to give semiannual testimony about the economic outlook to the Senate Banking Committee at 10 a.m. Washington time.

Producers paid 9.2 percent more for goods from June 2007, the biggest year-over-year increase since June 1981, compared with a 7.2 percent gain in the 12 months ended in May. Excluding food and energy, the increase was 3 percent from a year earlier, the same as the prior month.

More Costly

Food was 1.5 percent more costly, after a 0.8 percent change the previous month. Vegetables jumped 14.7 percent.

Producers paid 9 percent more for gasoline and diesel fuel gained 6.7 percent, the report showed. Natural gas costs were up 5.2 percent from the previous month.

The wholesale-price report is based on figures for the Tuesday of the week that includes the 13th of the month. On that basis, crude oil cost about $5.50 a barrel more in June on the New York Mercantile Exchange than the prior month. Oil futures prices topped a record $147 a barrel July 11.

Costs of intermediate goods, those used in earlier stages of production, rose 2.1 percent, after a 2.9 percent gain in May. They increased 14.5 percent from a year ago. Excluding food and energy, intermediate prices gained 1.3 percent.

Prices for raw materials, or so-called crude goods, increased 3.7 percent, after a 6.7 percent rise the prior month.

The Fed in its last policy statement on June 25 indicated that it considered inflation a greater risk to the economy than slowing growth.

`Continued Increase'

``In light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high,'' the Fed said June 25 after it voted to keep its key lending rate unchanged at 2 percent.

Still, the Fed added that it ``expected inflation to moderate later this year and next year'' as a result of the economic slowdown.

Today's report showed passenger car prices rose 2.2 percent and light trucks fell 1.8 percent.

The report showed prices for capital equipment increased 0.3 percent. Consumer goods prices rose 2.3 percent. Civilian aircraft prices were up 0.4 percent.

Producer prices are one of three monthly inflation gauges reported by the Labor Department. Import prices rose 2.6 percent in June, matching the gain the prior month on rising fuel costs, the Labor Department said July 11. Consumer prices, which will be released July 16, probably rose 0.7 percent in June, according to economists surveyed by Bloomberg.

Having Success

Some companies are having success in recouping rising costs. General Electric Co.'s Energy unit is among them.

``We've been able to offset inflation, but it hasn't been easy,'' said John Krenicki, chief executive officer of General Electric Energy, in an interview in Washington last week. ``We've passed it along. As long as there is demand for our products, we'll figure out how to manage through.''

Dow Chemical Co., the largest U.S. chemical maker, will raise prices on its products by as much as an additional 25 percent in July to make up for surging energy costs. That follows a price increase of 20 percent announced in June.

``The staggering increase in our costs over the past few months have forced us to take these further measures in order to restore our margins,'' Chief Executive Officer Andrew Liveris said in a statement June 24.

Others are having limited success. Automakers, with less ability to raise prices, are cutting staff and production.

General Motors Corp. reduced its North American truck production plan and added no-interest loans on many 2008 models after a consumer shift to cars contributed to a 16 percent drop in its U.S. sales through May, the company said June 23.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

Last Updated: July 15, 2008 09:08 EDT