U.S. Markets

U.S. producer prices unexpectedly rise on services

WASHINGTON, (Reuters) - U.S. producer prices unexpectedly rose in June as sustained increases in the cost of services offset declining energy prices, suggesting a recent

moderation in inflation was likely temporary.

The Labor Department said on Thursday its producer price index for final demand ticked up 0.1 percent last month after being unchanged in May.

In the 12 months through June the PPI increased 2.0 percent, slowing after May’s 2.4 percent advance as last year’s energy-driven rise drops out of the calculation.

Economists polled by Reuters had forecast the PPI being unchanged last month and rising 1.9 percent from a year ago.

Federal Reserve officials are closely watching inflation, which has remained below the U.S. central bank’s 2 percent target for five years. They have largely viewed the recent retreat in price pressures as transitory.

Labor market strength is expected to encourage the Fed to raise interest rates in December for a third time this year and announce in September a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities.

Fed Chair Janet Yellen told lawmakers on Wednesday that the economy was healthy enough for the central bank to raise rates and begin winding down its massive bond portfolio.

Last month, prices for services gained 0.2 percent, accounting for almost 80 percent of the increase in the PPI.

Services were lifted by a 0.3 percent rise in the index for final demand trade services, excluding transportation and warehousing. It was the fourth straight monthly increase in services and followed a 0.3 percent gain in May.

The cost of healthcare services were unchanged after dipping 0.1 percent in May. Those costs feed into the Fed’s preferred inflation measure, the core personal consumption expenditures price index.

Energy prices fell 0.5 percent after declining 3.0 percent in May. Food prices jumped 0.6 percent in June following a 0.2 percent drop the prior month.

A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.2 percent last month. The so-called core PPI fell 0.1 percent in May. The core PPI increased 2.0 percent in the 12 months through June after climbing 2.1 percent in May.

Reporting By Lucia Mutikani; Editing by Andrea Ricci