Services, food boost U.S. producer prices in March

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WASHINGTON (Reuters) – U.S. producer prices increased more than expected in March, boosted by rising healthcare and food costs, pointing to a steady buildup of inflation pressures.

FILE PHOTO: Workers box jars of pasta sauce at a plant run by Chelten House Products in Bridgeport, New Jersey July 27, 2015. REUTERS/Jonathan Spicer

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 rising 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, advancing 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 dollar pared losses against a basket of currencies after the data while prices for U.S. Treasuries fell.

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.

FILE PHOTO: A wing spar assembly robot is pictured during a launch event for the Boeing 777X at the Boeing production facility in Everett, Washington, U.S. October 23, 2017. REUTERS/Jason Redmond/File Photo

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. Overall, the cost of healthcare services rose 0.3 percent in March. Those costs feed into the core PCE price index. There were also increases in the cost of airline tickets, and cable and satellite subscriber services.

But the cost of wholesale apparel, footwear and wireless communications services fell last month.

Prices for goods rose 0.3 percent, after slipping 0.1 percent in February. They were lifted by a 2.2 percent jump in wholesale food prices. That was the biggest increase since April 2014 and followed three straight monthly declines.

Wholesale food prices last month were driven by a surge in the cost of unprocessed fish, chicken eggs and fresh and dry vegetables.

Gasoline prices dropped 3.7 percent after falling 1.6 percent in February.

Reporting by Lucia Mutikani; Editing by Andrea Ricci

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