Wholesale prices in US increased in June as fuel climbed

[WASHINGTON] Wholesale prices in the US climbed more than forecast in June as the cost of fuel picked up.

The 0.4 per cent increase in the producer-price index followed a 0.5 per cent gain in May, Labour Department figures showed Wednesday in Washington. The median forecast of 70 economists surveyed by Bloomberg called for a 0.2 per cent advance. Costs fell 0.7 per cent over the past 12 months.

A broad pickup in prices would help strengthen the case for Federal Reserve policy makers to start raising interest rates this year, as Chair Janet Yellen has indicated could be appropriate. The plunge in oil costs last year may wring itself out of the data in the coming months, helping to boost the inflation figures further.

"The profile of inflation heading into the second half of the year will actually look quite a bit more favourable," Gennadiy Goldberg, a U.S. strategist at TD Securities USA LLC in New York, said before the report. That should work in the Fed's favour, because "it's much easier to communicate the need for a rate hike when inflation is starting to climb." Projections in the Bloomberg survey ranged from a drop of 0.2 per cent to a 0.5 per cent gain.

Energy expenses rose 2.4 per cent last month, paced by higher gasoline costs.

Food prices increased 0.6 per cent in June, reflecting a record 85 per cent surge in the cost of chicken eggs as the bird flu epidemic crimped supply.

Food, Energy Wholesale prices excluding food and energy increased 0.3 per cent, compared with the 0.1 per cent gain seen by the median forecast of economists surveyed. It followed a 0.1 per cent increase in May. Those costs were up 0.8 per cent from June 2014.

Also eliminating trade services to arrive at a reading that economists at banks such as Morgan Stanley prefer because it excludes one of the report's most volatile components, wholesale costs also climbed 0.3 per cent last month after falling 0.1 per cent.

The produce price gauge is one of three monthly inflation reports released by the Labour Department, which also publishes the import cost measure and the consumer price index, which is expected on July 17.

A report Tuesday showed the cost of goods bought abroad dropped in June, restrained by cheaper automobiles. The import- price index declined 0.1 per cent last month after advancing 1.2 per cent in May, according to Labour Department figures. Import prices were down 10 per cent from the year before.

As part of their dual mandate, Fed policy makers are keeping a close watch on inflation trends. The personal consumption expenditures index, the Fed's preferred inflation gauge, rose 0.2 per cent in May from a year earlier and has been below the Fed's 2 per cent goal since May 2012.

Ms Yellen expects "that it will be appropriate at some later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy," she said in a speech last week in Cleveland. She also added a note of caution, saying that "the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step." Ms Yellen on Wednesday begins her semi-annual monetary policy testimony to lawmakers, who may pepper with questions about the economic and monetary policy outlook.

BLOOMBERG