Rising services costs lift US producer prices in Feb

[WASHINGTON] US producer prices increased slightly more than expected in February as a rise in the cost of services offset a decline in the price of goods.

The Labor Department said on Wednesday its producer price index for final demand rose 0.2 per cent last month after increasing 0.4 per cent in January.

That lifted the year-on-year increase in the PPI to 2.8 per cent in February from 2.7 per cent in January. Economists polled by Reuters had forecast the PPI gaining 0.1 per cent last month and increasing 2.8 per cent from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.4 per cent last month, matching January's gain. In the 12 months through February, the so-called core PPI increased 2.7 per cent. That was the biggest gain since August 2014 and followed a 2.5 per cent advance in January.

The solid increase in underlying wholesale prices supports views that consumer inflation will pick up this year.

Economists believe that a tightening labor market, weak dollar and fiscal stimulus in the form of a US$1.5 trillion tax cut package and increased government spending will push inflation toward the Federal Reserve's 2 per cent target this year.

The US central bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012.

The Fed has forecast three interest rate increases this year, with the first hike expected at the March 20-21 meeting.

Some economists expect that it will raise its projection to four rate increases this year.

Last month, the price of services increased 0.3 per cent after a similar gain in January. Services were boosted by a rise in the cost of hotel accommodation, hospital inpatient care, airline fares and bundled wired telecommunications services.

Prices for goods slipped 0.1 per cent, the first drop since May 2017, after rising 0.7 per cent in January. Wholesale food prices fell for a third straight month. Gasoline prices dropped 1.6 per cent after surging 7.1 per cent in January.

REUTERS