U.S. Markets

Rising services costs lift U.S. producer prices in February

WASHINGTON, (Reuters) - U.S. producer prices increased slightly more than expected in February as a rise in the cost of services offset a decline in the price of goods.

FILE PHOTO: Customers shop at a Whole Foods store in New York City, U.S., August 28, 2017. REUTERS/Brendan McDermid/File Photo

The Labor Department said on Wednesday its producer price index for final demand rose 0.2 percent last month after increasing 0.4 percent in January.

That lifted the year-on-year increase in the PPI to 2.8 percent in February from 2.7 percent in January. Economists polled by Reuters had forecast the PPI gaining 0.1 percent last month and increasing 2.8 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, matching January’s gain. In the 12 months through February, the so-called core PPI increased 2.7 percent. That was the biggest gain since August 2014 and followed a 2.5 percent advance in January.

The solid increase in underlying wholesale prices supports views that consumer 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, has undershot its target since May 2012.

The Fed has forecast three interest rate increases this year, with the first hike expected at the March 20-21 meeting. Some economists expect that it will raise its projection to four rate increases this year.

Last month, the price of services increased 0.3 percent after a similar gain in January. Services were boosted by a rise in the cost of hotel accommodation, hospital inpatient care, airline fares and bundled wired telecommunications services.

Prices for goods slipped 0.1 percent, the first drop since May 2017, after rising 0.7 percent in January. Wholesale food prices fell for a third straight month. Gasoline prices dropped 1.6 percent after surging 7.1 percent in January.

Reporting By Lucia Mutikani; Editing by Andrea Ricci