Services, food boost producer prices in March

Washington

US producer prices increased more than expected in March, boosted by rising healthcare and food costs, pointing to a steady build-up of inflation pressures.

The Labor Department said on Tuesday its producer price index (PPI) for final demand rose 0.3 per cent last month after increasing 0.2 per cent in February.

That lifted the year-on-year increase in the PPI to 3.0 per cent from 2.8 per cent in February. Economists polled by Reuters had forecast the PPI gaining 0.1 per cent last month and rising 2.9 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, advancing by the same margin for a third straight month.

The so-called core PPI increased 2.9 per cent in the 12 months through March, the biggest increase since August 2014, after climbing 2.7 per cent in February.

The US dollar pared losses against a basket of currencies after the data while prices for US Treasuries fell.

The broad-based increase in wholesale prices supports views that inflation will pick up this year. Economists believe that a tightening labour market, weak US 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, increased 1.6 per cent in February after being stuck at 1.5 per cent for four straight months.

The Fed increased interest rates last month and forecast two more rate hikes this year.

Last month, the price of services increased 0.3 per cent, rising by the same margin for a third consecutive month. Services accounted for 70 per cent of the increase in the PPI last month.

They were boosted by a 0.4 per cent rise in the cost of outpatient care. Overall, the cost of healthcare services rose 0.3 per cent in March. Those costs feed into the core PCE price index. There were also increases in the cost of airline tickets, and cable and satellite subscriber services.

But the cost of wholesale apparel, footwear and wireless communications services fell last month.

Prices for goods rose 0.3 per cent, after slipping 0.1 per cent in February. They were lifted by a 2.2 per cent jump in wholesale food prices. That was the biggest increase since April 2014 and followed three straight monthly declines.

Petrol prices dropped 3.7 per cent after falling 1.6 per cent in February. REUTERS