Fuel pushes up US producer prices

The rise in factory and farm prices beat expectations

US wholesale prices rose by a more than expected 0.5% in June, underpinned by higher food and energy costs, according to data from the Department of Labor.

The increase in farm and factory prices beat the forecast of a 0.3% gain, and could push interest rates higher.

The Federal Reserve has raised rates by a quarter-point every month since June 2004, to their current level of 5.25%.

The Labor Department said core prices - stripping out food and fuel costs, rose 0.2% - in line with forecasts.

"The Fed has an economy which is slowing while at the same time there are signs of upward pressure on prices," said Laura Rhame, senior currency strategist at Credit Suisse in New York.

"My guess is that the Fed will need to respond by raising short term interest rates again."

On Wednesday the Labor Department will release its report on June consumer prices - a key inflation measure that will motivate the Fed in its decision on whether to raise interest rates again in August.

Fed chairman Ben Bernanke is also due to deliver the central bank's six-monthly monetary policy report, which the markets will scrutinize for a steer on future interest rate movements.