Jan. 17 (Bloomberg) -- Prices paid to U.S. producers last month rose more than forecast, reflecting higher costs for crude oil and gasoline that have since declined.

The 0.9 percent gain in the producer price index followed a 2 percent November rise, the Labor Department said today in Washington. So-called core wholesale prices that exclude energy and food advanced 0.2 percent, also more than anticipated, after climbing 1.3 percent. A separate report from the Federal Reserve showed industrial production increased along with factory use.

The jump in wholesale inflation will probably be temporary because crude-oil prices have retreated about 20 percent since the middle of last month, economists said. The Fed's regional survey, also released today, showed ``competition has kept prices for final goods in check,'' reinforcing the view of policy makers that inflation will recede gradually.

``The good news was that excluding volatile food and energy, costs continued to increase at a fairly moderate pace,'' said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. ``We know that the huge rise in energy costs will unwind with the January numbers so there is little to be concerned with on that front -- at least for now.''

Traders' attention will now turn to tomorrow's consumer- price numbers. Economists forecast a 0.4 percent rise in the December consumer price index after no change a month earlier, according to the median of 74 estimates in a Bloomberg News survey.

Fed's Beige Book

Most Fed districts reported that economic growth ``expanded at a modest pace'' at the end of 2006, according to the central bank's regional survey. The labor market was described as ``tightening'' with ``relatively moderate gains in wages.'' A third of the Fed's 12 district banks said price pressures were ``easing or moderating,'' the report, known as the beige book for the color of its cover, showed.

The worst of the slump in the housing market may be over, a separate report showed. The National Association of Home Builders/Wells Fargo said its index of homebuilder sentiment rose to 35 this month from 33 in December.

Production at factories, mines and utilities rose 0.4 percent last month after a 0.1 percent November drop, the Fed's report showed. Capacity utilization, which measures the proportion of plants in use, rose to 81.8 percent, from 81.6 percent a month earlier.

The report may signal a manufacturing rebound as improving demand in the U.S. and abroad helps trim bloated inventory, leaving housing as the only major concern for the economy. The warmest December in five decades caused utility use to drop 2.6 percent, preventing production from rising even more.

Production `Will Be Picking Up'

``The broad-based increase in manufacturing suggests that inventory problems are largely behind us,'' said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. ``Production growth will be picking up in the first quarter in response to demand.''

The Treasury's benchmark 10-year note fell 3/16, pushing up the yield 2 basis points to 4.77 percent at 1:44 p.m. in New York.

Producer prices increased 1.1 percent last year, compared with a 5.4 percent rise in 2005. Prices excluding food and energy rose 2 percent in 2006 after a 1.4 percent increase a year earlier.

Economists had forecast producer prices to rise 0.5 percent, according to the median of 70 estimates in a Bloomberg survey. Estimates ranged from a 0.1 percent decline to a 1.2 percent rise. Core prices were expected to rise 0.1 percent.

Energy Prices

Energy prices increased 2.5 percent last month after jumping 6.1 percent in November. The price of gasoline rose 7.1 percent, heating oil increased 4 percent, and natural gas costs gained 0.7 percent.

Economists including Mike Englund at Action Economics LLC said the government's seasonal adjustment process, which normally anticipates a decline in fuel prices during December, may have exaggerated the increase in energy prices. Wholesale gasoline prices, which usually decline in December, rose to $1.71 a gallon in the first two weeks of December from $1.66 a gallon in the same period a month earlier.

Food prices rose 1.7 percent, the most since October 2003, after rising 0.1 percent in November, the Labor Department said. The costs of fresh fruits and melons jumped 26 percent, the most since September 2000. Fresh vegetable prices also increased by almost 22 percent.

Intermediate Goods

Costs of intermediate goods, those used in earlier stages of production, rose 0.5 percent last month. They were up 2.8 percent in the 12 months ended in December. Prices for raw materials, or so-called crude goods, rose 2.9 percent and were down 2.4 percent in 2006.

Excluding food and energy, intermediate prices fell 0.1 after falling 0.3 percent in November. Compared with a year earlier, core intermediate goods costs 4.7 percent.

Core crude goods prices rose 1 percent from a month earlier.

The price of U.S. steel sheet, the most common product used in cars and appliances, fell 5.3 percent last month to the lowest in 13 months, Purchasing Magazine said Dec. 29. Lower demand, delayed orders from steel customers and rising imports dragged down prices, the magazine said.

Slower growth and increased competition have spurred discounts among automakers. Nissan Motor Co. Chief Executive Officer Carlos Ghosn said that while steelmakers are asking for price increases, automakers won't be able to pass any rise on to customers.

Lost `Pricing Power'

``The automotive industry has lost all of its pricing power,'' Ghosn said.

Prices for passenger cars fell 0.2 percent after increasing 2.2 percent in November, today's report showed. Costs of light trucks rose 0.7 percent after rising a record 13.7 percent.

Carmakers aren't the only ones grappling with the effects of discounting. Sunnyvale, California-based Advanced Micro Devices Inc., which supplies personal-computer processors, said fourth-quarter profit tumbled as its larger competitor cut prices to regain market share.

Today's report showed that prices for capital equipment rose 0.2 percent in December after a 1.4 percent increase the month before. Computer prices fell 0.7 percent.

The Fed last month kept its benchmark overnight lending rate unchanged at 5.25 for a fourth straight meeting.

Fed Bank of Chicago President Michael Moskow said Jan. 10 that he expects economic growth to strengthen in the coming year, which may precipitate a boost in interest rates.

Recent attempts to raise prices in some industries underscore policy makers' concerns.

Dow Chemical Co., the largest U.S. chemical maker, Nova Chemicals Corp. and other plastics makers said prices for polyethylene are poised to rise in the first quarter as customers restock depleted inventories. Polyethylene is the most widely used plastic.

To contact the reporter on this story: Joe Richter in Washington at jrichther1@bloomberg.net; Shobhana Chandra in Washington at schandra@bloomberg.net

Last Updated: January 17, 2007 14:00 EST