Published: Jan 14, 2011 12:09 AM EST
Updated: Jan 13, 2011 9:09 PM EST

WASHINGTON (AP) - Rising wholesale prices for food and energy are putting pressure on manufacturers and retailers to pass higher costs to customers. It's a trend that could raise inflation in the United States and slow economies in Asia and Latin America.

U.S. gas prices have topped $3 a gallon, and grain prices have reached a 2½-year high. Some lawmakers say the increases illustrate the need for tighter limits on speculation in commodities markets.

 Airlines, clothing manufacturers and some grocery stores have already raised retail prices. And even those companies that have resisted increases because they worry that customers can't afford them may be more reluctant to hire because of the squeeze.

 Some economists expect prices to rise faster this year than last, although not fast enough to cause policy changes at the Federal Reserve, which has the power to raise interest rates to keep inflation in check.

And though the higher prices could be a drag on consumer spending, they shouldn't derail the overall economy, economists say.

The price of corn, soybeans, wheat and other grains has shot up since last summer as bad weather has hammered harvests in Russia, Australia and Argentina. That raises the cost of feeding livestock, and in turn raises prices for beef and poultry. Oil prices, currently at about $92 a barrel, are rising because of strong demand from fast-growing developing countries.

Wholesale prices rose 1.1 percent in December, the Labor Department said Thursday, the biggest increase in 11 months. Higher energy and food costs drove the increase. So-called core prices, which exclude those volatile categories, rose just 0.2 percent.

But the report can't be dismissed just because most of the increase came in food and energy prices, said Joel Naroff, chief economist at Naroff Economic Advisors. "These are not products which you can do without very easily," he said.

Last year, Americans spent about 8 percent of their money on energy, which includes natural gas, electricity, gasoline and motor oil. They spent about 13 percent on food.

Rising commodity prices have a bigger impact in developing countries, where people spend as much as 30 percent of their income on food. Inflation in China and Brazil will likely accelerate this year, forcing their central banks to raise interest rates and potentially slowing the global economy in 2012.

China's inflation rate reached 5.1 percent in November, a 28-month high. Chinese officials have raised interest rates and have vowed to make fighting inflation a higher priority. Further rate increases could slow the Chinese economy.

 Grocers in the U.S. resisted passing along higher prices for meat, bread and other goods last year, with unemployment near 10 percent and the economy weak. That's expected to change as food producers raise their prices and stores slow their discounting.

Supermarket chain Kroger Co. says it's already passing on some cost increases from national brand suppliers. But it's being selective about raising other prices.

Some major food producers, including ConAgra Foods Inc. and General Mills Inc., say they're feeling the crunch of higher ingredient costs and are raising prices to cope.

Supervalu Inc. said inflation has hit its perishables - meat, dairy and produce - but has been slower for other products. But with most of its major vendors announcing they plan to pass on rising costs, the supermarket chain expects to raise prices on those goods throughout the year.

"At some point everybody has to be more rational and understanding when your costs are up as much as they are," Gary Rodkin, CEO of ConAgra, said recently. "You cannot sustain those kind of margin pressures, whether you are a retailer or a manufacturer, for the long-term health of your business."

Brian Bethune, an economist at IHS Global Insight, still thinks consumer spending will rise this year because wage gains and a Social Security tax cut will outweigh the higher prices.

Companies that don't pass along the higher costs will need to save money elsewhere. That could mean delaying hiring or putting off pay raises.

 For now, economists don't think rising food and energy prices will force the Federal Reserve to scale back or halt its program to buy $600 billion worth of Treasury bonds by the end of June, an effort aimed at strengthening the economy.

But the Fed will watch for signs that higher food and energy prices are forcing companies to raise lots of other prices, which would spread inflation throughout the economy. So far, there are only limited signs that's happening.

Federal Reserve Chairman Ben Bernanke told Congress last week that he expected inflation in the United States is "likely to be subdued for some time." Still, some economists expect it to accelerate.

Rising wholesale prices won't result in higher cost-of-living adjustments in benefit programs like Social Security. Those programs follow the consumer price index, the latest reading of which is due out Friday. Tame inflation has produced two straight years without any increases for Social Security beneficiaries. Last year's increases in gas prices didn't push overall consumer prices high enough to trigger a cost-of-living increase.

Federal regulators, meanwhile, took steps Thursday to limit speculative trading in oil, agricultural goods and other commodities. Speculators buy futures contracts, which are agreements to buy commodities in the future at pre-determined prices, in hopes of selling them at a higher price later - booking a profit without ever actually owning the goods.

Critics, including many members of Congress, charge that hedge funds and other Wall Street traders have caused sharp price swings in oil, grains and other goods, driving up prices for cash-strapped consumers.

The Commodity Futures Trading Commission proposed limits on futures trading for 28 commodities. It would exempt companies that actually use the products and take advantage of futures contracts to protect against future price increases, like airlines that lock in rates for jet fuel.

--- Associated Press Writers Sarah Skidmore in Portland, Ore., and Marcy Gordon in Washington contributed to this report.

(Copyright 2011 by The Associated Press. All Rights Reserved.)