WASHINGTON (REUTERS) - Producer prices in the United States increased more than expected in February, and the year-on-year gain was the largest in nearly five years, pointing to a steady rise inflation pressures.
The Labor Department said on Tuesday that its producer price index for final demand increased 0.3 per cent last month after rising 0.6 per cent in January. Economists polled by Reuters had forecast a 0.1 per cent uptick.
In the 12 months through February, the PPI jumped 2.2 per cent, the biggest advance since March 2012 and ahead of the 2.0 per cent gain forecast in the Reuters poll. It followed a 1.6 per cent increase in January.
Producer prices are rising as the prior weak readings, induced by cheap oil, drop out of the calculation. Crude oil prices have risen above US$50 (S$70.6) per barrel.
Also boosting price pressures are the dollar's 1.5 per cent drop against the currencies of the United States' main trading partners since January and overall commodity price gains in tandem with a firming global economy.
A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3 per cent in February, the biggest gain since April 2016. The so-called core PPI rose 0.2 per cent in January.
Core PPI increased 1.8 per cent in the 12 months through February after advancing 1.6 per cent in January.
The Federal Reserve has a 2 per cent inflation target and tracks a measure that is currently at 1.7 per cent. Fed officials were due to start a two-day policy meeting later on Tuesday.
The US central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0.75 per cent and 1.00 per cent. It has projected three hikes in 2017.
In February, prices for final demand services increased 0.4 per cent, accounting for more than 80 per cent of the rise in the PPI. That was the biggest rise since June 2016 and followed a 0.3 per cent gain in January. The cost of energy products increased 0.7 per cent last month, slowing from January's 4.7 per cent surge.
Wholesale food prices increased 0.3 per cent after being unchanged in January. Healthcare costs rose 0.2 per cent after a similar gain in January. Those costs feed into the Fed's preferred inflation measure, the core personal consumption expenditures index.
The volatile trade services component, which measures changes in margins received by wholesalers and retailers, rose 0.4 per cent last month after shooting up 0.9 per cent in January.