By Alan Fein

(AXcess News) New York - A U.S. Department of Labor report showed that wholesale prices paid by U.S. producers rose in January 0.8 percent, largely due to an increase in the cost of fuel.  January's increase was the first time in six months that producer prices rose in the U.S.

The Producer Price Index (PPI), which tracks the changes in selling prices for domestic producers, rose nearly three times the consensus by economists who were forecasting a 0.3 percent increase in wholesale prices last month.

The core PPI, which excludes the more volatile cost of food and energy, rose 0.4 percent in January, far more than expected.

As the rate of inflation rose the level of unemployment reached a record high of nearly 5 million workers continuing to collect unemployment benefits for the week ending February 7 2009.  Initial jobless claims for the week ending February 14th were unchanged at 627,000, the U.S. Department of Labor reports.

Economic pundits had forecast core PPI to rise 0.1 percent in January, but as the labor market shows, a weakening economy is taking its toll on U.S. producers as January's wholesale figures indicate a higher-than-expected inflation rate that could only add to the deepening job market.

Still, an increase in the rate of wholesale inflation lowered the risk of economic deflation in the U.S..   Economic deflation could force a downward spiraling effect for the U.S. economy as a whole and push the nation into a Depression.  Earlier this week, contrarian investor Doug Casey proclaimed that the U.S. economy was already in a state of Depression and said forecast a continuing drop in economic conditions.

The wholesale rate of inflation in January was largely due to rising energy prices.  Energy prices rose 3.7 percent in January compared to a sharp 9.1 percent decline the prior month.  The gasoline index in January rose 15 percent, but the sharp increase was nothing compared to the steep 16.2 percent drop in December.

The wholesale price of food in January managed to decline 0.4 percent, the government reports.  In December, food costs fell 1.4 percent.

Tomorrow, the consumer price index for January will be released.  The measurement of retail prices paid by consumers is expected to have risen marginally in January after a flat reading in December.  The core CPI, excluding the rate of inflation of food and energy, is forecast to be up 0.3 percent.