Updated from 9:32 a.m. EDT

A sharp rise in the price of energy caused overall wholesale prices to surge in June, even as the prices of non-energy goods dropped slightly, suggesting that U.S. inflation remains largely benign when the recent

volatility in crude oil prices is factored out.

The

producer price index

, a measure of the wholesale business-to-business cost of goods, rose 0.6% in June after remaining unchanged in

May. But the core CPI, which excludes energy costs, fell 0.1%, the

Labor Department

said Friday.

The overall wholesale inflation rate was slightly higher than the 0.5% consensus estimate from economists polled by

Reuters

, but the decline in the core rate fell short of expectations for a 0.1% increase.

The overall boost in consumer prices was pushed by a 5.1% jump in energy costs, as oil prices rose while markets pessimistically waited for a late June meeting of the

Organization of Petroleum Exporting Countries

. Prices dropped from their highs following OPEC's announcement that it would

increase its production quotas by roughly 700,000 barrels a day, but prices have since rebounded as actual production fell short of quotas, causing concern that producers are not supplying enough oil to meet worldwide demand.

Year to date, the PPI has risen at an annual rate of 4.8%, vs. a 3% gain for all of 1999, almost entirely due to upward momentum in energy prices.

In May, the jump in energy costs was driven by an 11.8% increase in gasoline prices that took consumer prices to $2 a gallon in some parts of the country. Fuel oil prices also rose 8.4%, and natural gas prices increased 5.7%.

Outside of energy, declines in food and tobacco prices helped to keep overall inflation under wraps. Prices for fresh fruits dropped 11.8%, while prices for fresh and dried vegetables dropped 14.7%. Tobacco dropped 1.4%. Auto prices also fell 0.5% in June, as dealers offered promotions to try and draw car buyers after sales

sagged in May.

Despite the high overall rate of inflation, the PPI on its own is unlikely to strike fear in

Federal Reserve

policymakers, who have raised interest rates six times in the past year in an attempt to quell consumer and business demand and avoid inflation.

In theory, higher interest rates slow demand by making it more costly for consumers and businesses to borrow and spend, decreasing the risk of inflation. But the lack of significant inflation outside of oil prices, along with "tentative and preliminary" signs of an economic slowdown identified by the Fed, caused policymakers to leave rates unchanged when they last met.

Economists now have mixed opinions on whether the Fed will continue to raise rates when it meets next in August, especially after a June rebound in some key parts of the economy that appeared to weaken in May, such as

retail sales and

unemployment. Additionally, the rising wages and salaries seen recently could cause businesses to raise prices in a move to keep up with higher employee costs.

Separately Friday, the Fed reported that production in the nation's mines, factories and utilities rose 0.2% in June following 0.5% growth in May, suggesting that

industrial output

may be slowing in anticipation of an interest rate-related reduction in demand.