Inflation at the wholesale level gained 1% overall in February, pushed up by sharp gains in oil and tobacco prices.

The

Labor Department's

Producer Price Index was significantly higher than expected by economists who looked for increases of 0.5% or 0.6%, indicating a crack in the inflationary picture. Meanwhile, core inflation, which excludes the often-wide swings in food and energy prices, increased 0.3%.

Energy prices, victim of a tripling in oil prices over the past year, rose 5.2%, compared with a gain of 0.7% in January. "More of a rise in energy prices came through than anticipated," said Brian Fabbri, chief economist at

Paribas Capital Management

.

The economy also took a bigger hit in tobacco prices, at an increase of 5.6% for the month. "That is wildly high," Fabbri said. "Usually we're talking about a rise of 0.4% or 0.5%."

But Frazier Evans, senior economist at

Liberty Funds

, was cheered by the minimal 0.2% rise in core intermediate goods. "I was concerned that we'd start to see increased pressure," he said. "I'd seen surveys of pricing power in Europe and the U.S. where corporations feel they are having better success at raising prices. I was wondering when we'd start to see that in something official, but so far we're not seeing it."

The warning signal would come at the 0.4% or 0.5% level.

"Wholesale prices are just a small fraction of the inflationary picture," Evans added. "Tomorrow we'll wait to see if anything filters through to

CPI

, a much broader indication." The Labor Department will release the

Consumer Price Index figures Friday.

Fabbri contended that Thursday's numbers contain a mixed message for the future. "People do smoke and use energy. As prices for those increase, that's inflationary," he said. "And with energy prices rising as they are, there will be changes in prices, with a lag, for airline fares, freight costs and chemicals with petroleum."