US producer prices increased more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years. The report published by the Labour Department on Wednesday also showed a pickup in underlying producer inflation last month. Economists expect tariffs on lumber, steel and aluminium imports to drive up prices, likely keeping the Federal Reserve on track to increase interest rates two more times this year.
"With underlying inflationary pressures building even before the tariffs, we suspect the Fed will be forced to continue raising rates once a quarter," said Michael Pearce, senior US economist at Capital Economics in New York.
The producer price index for final demand climbed 0.3 percent last month after rising 0.5 percent in May. That pushed the annual increase in the PPI to 3.4 percent, the largest rise since November 2011, from 3.1 percent in May.
Economists polled by Reuters had forecast the PPI gaining 0.2 percent in June and increasing 3.2 percent year-on-year.
A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.3 percent last month. The so-called core PPI edged up 0.1 percent in May.
In the 12 months through June, the core PPI advanced 2.7 percent after increasing 2.6 percent in May.
There were gains in the cost of materials used in manufacturing and construction, a sign that the duties on steel and aluminium imports were raising prices.
Prices for softwood lumber, iron and steel mill products as well as nonferrous metal products increased in June.
Manufacturers have been facing a rise in the cost of inputs, but so far have not passed on the increases to consumers. Inflation is steadily rising against the backdrop of a labour market that is viewed as being near or at full employment.
The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, hit the US central bank's 2 percent target in May for the first time in six years. The Fed raised interest rates in June for the second time this year and has forecast two more rate hikes by the end of 2018.
In June, the cost of services increased 0.4 percent after climbing 0.3 percent in May. A 21.8 percent jump in the index for fuels and lubricants retailing accounted for about 40 percent of the rise in the cost of services.
The cost of healthcare services rose 0.2 percent as a 1.0 percent surge in prices for hospital outpatient care offset slight declines in the cost of doctor visits and hospital inpatient care. Healthcare prices nudged up 0.1 percent in May.
Those healthcare costs feed into the core PCE price index.
There were also increases in the cost of transporting goods by road, likely reflecting an acute shortage of truck drivers.
Truck transportation prices soared a record 1.3 percent in June.
But wholesale prices of apparel and footwear fell as did the cost of airline tickets.
Prices for goods edged up 0.1 percent last month after surging 1.0 percent in May. They were last month restrained by a 1.1 percent drop in food prices. Wholesale gasoline prices rose 0.5 percent after jumping 9.8 percent in May. Excluding foods and energy, goods prices climbed 0.3 percent, rising by the same margin for a sixth consecutive month. Motor vehicle prices increased 0.4 percent in June, the biggest gain in seven months.
Comments
Comments are closed.