US producer prices rise more than expected in May

[WASHINGTON] US producer prices increased more than expected in May, leading to the biggest annual increase in nearly 6-1/2 years, but underlying producer inflation remained moderate.

The Labor Department said on Wednesday its producer price index for final demand rose 0.5 per cent last month, boosted by a surge in gasoline prices and continued gains in the cost of services. The PPI edged up 0.1 per cent in April.

In the 12 months through May, the PPI increased 3.1 per cent, the largest advance since January 2012. Producer prices rose 2.6 per cent year-on-year in April.

Economists polled by Reuters had forecast the PPI gaining 0.3 per cent from the prior month and rising 2.8 per cent from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services nudged up 0.1 per cent last month. The so-called core PPI rose by a similar margin in April. In the 12 months through May, the core PPI rose 2.6 per cent after advancing 2.5 per cent in April.

The renewed upward trend in producer prices strengthens expectations that inflation will pick up this year and likely breach the Federal Reserve's 2 per cent target.

Regional factory surveys have shown an acceleration in raw material prices this year. So far, manufacturers have not passed on these higher costs to consumers. A report on Tuesday showed monthly consumer prices rising moderately in May.

The US central bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 1.8 per cent year-on-year in April after a similar gain in March.

The Fed is expected to raise interest rates for a second time this year on Wednesday.

In May, prices for goods surged 1.0 per cent, accounting for 60 per cent of the rise in the PPI. Goods prices were unchanged in April. In May, they were boosted by a 9.8 per cent jump in the price of gasoline. Wholesale gasoline prices slipped 0.4 per cent in April.

Wholesale food prices edged up 0.1 per cent last month after declining 1.1 per cent in April. Excluding foods and energy, goods prices increased 0.3 per cent, rising by the same margin for a third straight month.

The cost of services increased 0.3 per cent after nudging up 0.1 per cent in April. Services were driven by a 0.9 per cent rise in margins for trade services.

The cost of healthcare services ticked up 0.1 per cent after falling 0.2 per cent in April. Those costs feed into the core PCE price index.

REUTERS