March 15 (Bloomberg) -- Prices paid to U.S. producers rose more than forecast in February, boosted by higher costs for energy, cigarettes and toys.

The 1.3 percent gain followed a 0.6 percent decline in January, the Labor Department said today in Washington. So-called core prices that exclude fuel and food rose 0.4 percent, double the increase in January and more than forecast.

The figures show stubborn inflationary pressures that Federal Reserve policy makers say pose the biggest risk to the economic expansion. The increase makes it harder for central bankers to lower interest rates even as growth slows and the subprime mortgage market threatens the broader economy.

``The numbers bear watching by the Fed and the markets,'' Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, said before the report. ``Core inflation is still a little higher than the Fed would like.''

Economists had forecast producer prices would rise 0.5 percent, according to the median of 71 estimates in a Bloomberg News survey. Estimates ranged from a decline of 0.2 percent to an increase of 1.2 percent. The increases in the overall index and the core measure last month were the biggest since November.

Core prices were projected to rise 0.2 percent last month, with estimates ranging from no change to a rise of 0.3 percent. Without rounding the monthly figures, core inflation at the producer level rose 0.374 percent after rising 0.188 percent.

Producer prices rose 2.5 percent from February 2006, compared with a 0.2 percent in the 12 months ended in January. Prices excluding food and energy increased 1.8 percent from a year earlier, the same as in January. They were projected to increase 1.7 percent from February 2006, according to the survey median.

Higher Energy Costs

Energy prices increased 3.5 percent last month after decreasing 4.6 percent the prior month. The price of gasoline jumped 5.3 percent, while natural gas costs increased 4.1 percent, the most since October 2005.

Today's report showed food prices rose 1.9 percent, the most since October 2003, after a 1.1 percent increase the previous month.

Prices of cigarettes increased 4.6 percent in February, the most since May 2001, while costs of toys and games rose 2.3 percent, the biggest rise since February 1983. Economists said tobacco prices typically increase at the start of the year.

Costs of intermediate goods, those used in earlier stages of production, rose 1.1 percent last month, after falling 0.7 percent the prior month. They were up 2.5 percent from a year ago. Excluding food and energy, intermediate prices rose 0.2 percent after being unchanged the prior two months.

Rise in Raw Materials

Prices for raw materials, or so-called crude goods, jumped 8.9 percent, following a 6.3 percent decline the prior month.

Prices for passenger cars fell 1.2 percent after declining 0.1 percent the prior month. Costs of light trucks increased 1.7 percent.

The report showed prices for capital equipment rose 0.3 percent last month after a 0.2 percent increase the month before. Prices of oil-field machinery, pumps, mining equipment and transformers rose last month.

The producer price index is one of three monthly inflation gauges reported by the government. A report yesterday showed prices of goods imported into the U.S. rose less than forecast in February, reflecting cheaper metals and business equipment. Import prices excluding petroleum fell 0.1 percent for a second month.

The Labor Department is forecast to report tomorrow that its consumer price index rose 0.3 percent last month after a 0.2 percent gain in January, according to a Bloomberg survey median. Core inflation rose 0.2 percent in February from the prior month, and was up 2.7 percent from the same month last year, matching the year-over-year gain in January.

Range of Inflation

For more than two years, the Fed's preferred inflation measure has been at or above the top of its comfort zone of a 1 percent to 2 percent gain cited by several policy makers. Fed officials, emphasizing that inflation remains the biggest policy risk, are counting on cooler growth to tame price pressures.

``Inflation pressures seem likely to moderate over time'' even as ``some inflation risks remain,'' members of the Fed's rate-setting Open Market Committee said in a statement after their January meeting.

Fed policy makers, led by Chairman Ben S. Bernanke, next meet on March 20-21, and they're forecast to keep the benchmark lending rate unchanged at 5.25 percent.

Most companies try to absorb higher materials costs before considering raising prices that could result in lost sales, economists said.

Dow Chemical Co., the largest U.S. chemical maker, said in January that its fourth-quarter U.S. sales were hurt as prices tumbled, led by a 25 percent drop in polyethylene, the world's most-common plastic. The company is trying to accelerate its shift to specialty chemicals, which can command higher prices.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: March 15, 2007 08:30 EDT