Fears that the American cost of living is set to march even higher were raised yesterday after wholesale prices last month surged at the fastest rate for six months.

According to official data published in Washington by the Labour Department, the producer price index rose 7.4 per cent last month compared with the same period the year before. The surging cost of goods before they reach the shelves was fuelled by the increasing cost of food and gasoline. Earlier this month, the price of a barrel of light sweet crude oil traded in New York hit a record $138 a barrel.

Even stripping out food and fuel, the core index still climbed 1.97 per cent within the month alone, and 3 per cent from a year ago, chalking up the biggest annual increase since 1991.

While suppliers and distributors can squeeze out some of the rise in costs before they reach the US consumer, Americans are already struggling to cope with annual inflation levels of 4.1per cent, with the cost of a gallon of gasoline running a record $3.98 in some states such as California.

The new data showed that last month, Americans had to pay 8 per cent more for pork products, representing the biggest rise in September 1999. The cost of milled rice in May has risen 83 per cent compared with the same period the year before while fruit prices increased almost 6 per cent during the month.

Kevin Logan, senior economist at Dresdner Kleinwort, the investment bank in New York, said: "What the producer prices show is that there is more [consumer] inflation in the pipeline. We can anticipate further increases. The rises we are seeing are quite something."

At the same time, industrial production last month dropped by 0.2 per cent as demand for goods and commodities sank amid the US housing recession. The fall in output, however, was less severe than the 0.7 per cent decline in April.

Adding to the gloom, another set of economic statistics showed that the US housing market indicates no sign of recovery as builders sought to reduce the number of housing starts. According to the US Commerce Department, the number of new housing projects started in May fell by 3.3 per cent.

Dimitry Fleming, US economist at ING, the Dutch bank, warned that the American housing market is so dire that "builders should throw in the towel".

He said: "Home builders have now cut production 60 per cent since the peak early 2006, but despite these drastic measures the overhang - as measured by the months of available supply - is still enormous and is even approaching the highs of the early 1980s crash. Two years into the housing crunch, companies have deployed every available trick to lift sales, but with next to no result. To make matters worse, rising delinquencies in the existing home market means builders now also have to compete with homes offered through auctions and foreclosure sales. For now, all they can do is wait for Federal help and in the meantime cut, cut, cut production."

Despite yesterday's tough data, the US Federal Reserve is not expected to raise interest rates when it meets next week for fear that an early increase in the cost of borrowing will push the American economy further into a recession. US interest rates are currently at 2 per cent.

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