U.S. producer prices record largest gain in 1-1/2 years

WASHINGTON Wed May 14, 2014 8:30am EDT

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WASHINGTON May 14 (Reuters) - U.S. producer prices posted their largest increase in 1-1/2 years in April as the cost of food and trade services surged, hinting at some inflation pressures at the factory gate.

The Labor Department said on Wednesday its seasonally adjusted producer price index for final demand rose 0.6 percent, the biggest gain since September 2012. Producer prices increased 0.5 percent in March.

Economists polled by Reuters had forecast prices received by the nation's farms, factories and refineries rising 0.2 percent. In the 12 months through April, producer prices advanced 2.1 percent, the biggest gain since March 2012, after rising 1.4 percent in March.

Producer prices have been volatile in recent months, driven by swings in the trade services category. The PPI series was revamped at the start of the year to include services and construction.

Its short history and volatility makes it a bit difficult to discern a trend. While price pressures are creeping up at the factory gate, the overall inflation backdrop remains benign given the slack left over from the recession.

Last month, food prices surged 2.7 percent, the biggest rise since February 2011. That followed a 1.1 percent increase in March and marked the fourth consecutive month of gains in food prices.

A drought in California is putting upward pressure on food prices, leaving Americans confronting higher prices at the supermarket.

Food prices were pushed up by a surge in the cost of meats, which recorded their largest rise since October 2003.

Energy prices rose 0.1 percent last month. Services for final demand gained 0.6 percent after rising 0.7 percent in March.

Producer prices excluding volatile food and energy costs increased 0.5 percent in April after the prior month's 0.6 percent gain.

Another gauge of core producer prices - final demand less foods, energy, and trade services - increased 0.3 percent after rising by the same margin in March.

In the 12 months through April, core PPI for final demand rose 1.9 percent after increasing 1.4 percent in March. (Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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