U.S. producer prices increase more than expected in March

U.S. producer prices increase more than expected in March

U.S. producer prices increased more than expected in March, boosted by a rise in the cost of services such as healthcare and airline fees, pointing to a steady buildup of wholesale inflation pressures, Reuters reports.

The Labor Department said on Tuesday its producer price index for final demand rose 0.3 percent last month after increasing 0.2 percent in February.

That lifted the year-on-year increase in the PPI to 3.0 percent from 2.8 percent in February. Economists polled by Reuters had forecast the PPI gaining 0.1 percent last month and advancing 2.9 percent from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.4 percent last month, increasing by the same margin for a third straight month. The so-called core PPI increased 2.9 percent in the 12 months through March, the biggest increase since August 2014, after climbing 2.7 percent in February.

The broad-based increase in wholesale prices supports views that inflation will pick up this year. Economists believe that a tightening labor market, weak dollar and fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending will push inflation toward the Federal Reserve’s 2 percent target this year.

The U.S. central bank’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 1.6 percent in February after being stuck at 1.5 percent 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 percent, rising by the same margin for a third consecutive month. Services accounted for 70 percent of the increase in the PPI last month. They were boosted by a 0.4 percent rise in the cost of outpatient care.

There were also increases in the cost of airline tickets and cable and satellite subscriber services.

Overall, the cost of healthcare services rose 0.3 percent in March. Those costs feed into the core PCE price index.

Prices for goods rose 0.3 percent, after slipping 0.1 percent in February. Wholesale food prices surged 2.2 percent after three straight monthly declines. Gasoline prices dropped 3.7 percent after falling 1.6 percent in February.

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