Higher energy prices rippled through the economy in June, helping drive bigger-than-expected gains in retail sales and inflation at the producer level.
The higher prices at the gas pump and for other energy products were seen as temporary, but economists worry that consumer spending will remain lackluster as unemployment rises, slowing a broader recovery.
The Commerce Department reported Tuesday that retail sales rose 0.6 percent in June, the biggest gain in five months. But without the gains from gasoline station sales and a rebound in autos, retail sales actually dipped 0.2 percent.
"Severe drags to consumer spending remain in place, but the economic gears are starting to turn market mechanics away from the vicious down-cycle," said Stuart Hoffman, chief economist at PNC.
Meanwhile, the 1.8 percent rise in wholesale prices -- double what economists had expected -- was the biggest gain since November 2007. It fanned investors' fears about inflation even though economists said the energy spike was not the beginning of a dangerous bout of inflation.
Over the past 12 months, wholesale prices have actually fallen 4.6 percent.
"A rogue surge in gasoline prices was behind the spike," said Brian Bethune, economist at IHS Global Insight. He predicted that the Labor Department's July report on wholesale prices would show prices moderating.
Crude oil prices topped $72 a barrel in June but have eased since then. Oil prices hit a record-high of $147 a barrel last July.
Many analysts expect the June increase in energy prices was short-lived and that the weak economy will restrain companies from ratcheting up prices they charge consumers.
Still, the unexpectedly big jump in wholesale prices did rattle bond investors. Prices, which move in the opposite direction of yields, plunged. The yield on Treasury's 10-year note rose to 3.44 percent in afternoon trading, up from 3.35 percent earlier in the day.
The 10-year note serves as a benchmark for many mortgage rates. Sustained increases would mean higher mortgage rates at a time when the housing sector is still struggling to rebound from a steep slump.