WASHINGTON (AP) -- A big jump in gasoline prices pushed inflation at the wholesale level up in March at the fastest pace in three months, as oil prices above $70 a barrel sent consumers a high-octane warning of expensive fuel costs ahead.

The Labor Department reported that wholesale prices rose by 0.5 percent in March following a 1.4 percent decline in February, which had been the largest drop in nearly three years.

The March increase was slightly worse than the 0.4 percent rise that Wall Street had been expecting and was driven by a 9.1 percent surge in gasoline prices, the biggest one-month gain since November 2004.

Introducing former Rep. Rob Portman Tuesday as his choice to be budget director, President Bush lamented the high fuel prices and said he attributes it to increasing demand and also concerns about perceptions of possible disruptions in supplies.

But, Bush added, "I'm also mindful that government has a responsibility to watch very carefully and to investigate any price gouging, and we'll do that."

Consumers can expect even worse numbers in coming months, given that crude oil prices this week have climbed to new records above $70 per barrel. That reflects worries about supply disruptions in Nigeria and increasing tensions between the West and Iran over Tehran's nuclear program.

In other economic news, the Commerce Department reported that construction of new homes dropped by 7.8 percent in March. It was the fourth decline in the past six months and provided further evidence that the nation's five-year housing boom is quieting down.

The decline pushed the construction of new homes down to a seasonally adjusted annual rate of 1.960 million units, the lowest rate in a year. Housing construction had surged by 16 percent in January, reflecting warm weather, but then fell by 7.8 percent in February.

The 0.5 percent overall increase in the Producer Price Index, which measures inflation pressures before they reach the consumer, was the biggest one-month gain since a 0.8 percent increase in December, a jump that was also driven by surging energy prices.

However, outside of the volatile energy and food sectors, core inflation was well-behaved in March, rising by just 0.1 percent, leaving core inflation rising by a moderate 1.7 percent over the past 12 months.

The Federal Reserve has been pushing interest rates up gradually since June 2004 in an effort to make sure that the big jump in energy costs over the past two years does not spill over into more widespread inflation problems.

Economists are looking for the central bank to boost a key interest rate for a 16th time at its May meeting and there is a growing view that the Fed will keep raising rates into the summer as worries about inflation continue to rise.

For March, overall energy prices were up 1.8 percent with all of the increase reflected by the big jump in gasoline prices. The cost of natural gas for home use fell by 0.5 percent while home heating oil prices were down 3.6 percent and residential electric power prices dropped by 0.7 percent, the biggest decline in nearly two years. Those declines reflected a warmer-than-normal winter which kept fuel supplies at adequate levels.

Food costs were up 0.5 percent after having fallen by 2.7 percent in February. The increase was driven by a 29.2 percent surge in the price of eggs, the biggest one-month gain since last September. The price of fish rose by 11.5 percent, the biggest increase in nearly two decades.

Outside of energy and food, the 0.1 percent rise in core inflation reflected a 0.4 percent increase in the price of new cars.

The big decline in housing activity reflected weakness in single-family construction which dropped 12 percent to a seasonally adjusted annual rate of 1.591 million units. Construction of apartments and other multi-family housing rose by 15.7 percent to an annual rate of 369,000 units.

Construction was down in all parts of the country, led by a 15.5 percent drop in the West and an 8.2 percent decline in the Midwest. Construction activity fell 4.8 percent in the South and was down 0.5 percent in the Northeast.

Permits for future construction fell by 5.5 percent in March to an annual rate of 2.059 million units following a decline of 1.7 percent in February.