US producer prices rise broadly, inflation firms
US producer prices increased more than expected in February as the cost of services such as hotel accommodation pushed higher and the year-onyear gain was the largest in nearly five years, pointing to steadily rising inflation pressures. Firming inflation, together with a tightening labor market, which is expected to generate strong wage growth, could allow the Federal Reserve to raise interest rates today. “Steadily rising inflation gives the Fed more reason to lift rates tomorrow,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The Labor Department said yesterday that its producer price index for final demand increased 0.3 percent last month after rising 0.6 percent in January. Economists polled by Reuters had forecast a 0.1 percent uptick. In the 12 months through February, the PPI jumped 2.2 percent, the biggest advance since March 2012 and ahead of the 2.0 percent gain forecast in the Reuters poll. It followed a 1.6 percent increase in January.
The fairly strong producer inflation readings came as Fed officials gathered yesterday for a two-day policy meeting. The dollar was trading higher against a basket of currencies, while US stocks were lower ahead of the Fed meeting. Prices for US Treasuries rose. Producer prices are rising as the prior weak readings, induced by cheap oil, drop out of the calculation. Crude oil prices have risen above $50 per barrel. Also boosting price pressures are the dollar’s 1.5 percent drop against the currencies of the United States’ main trading partners since January and overall commodity price gains in tandem with a firming global economy.
Core PPI rising
A key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3 percent in February, the biggest gain since April 2016. The so-called core PPI rose 0.2 percent in January. Core PPI increased 1.8 percent in the 12 months through February after advancing 1.6 percent in January.
The Fed has a 2 percent inflation target and tracks a measure that is currently at 1.7 percent. The US central bank is expected to raise its overnight benchmark interest rate by 25 basis points to a range of 0.75 percent and 1.00 percent today. It increased borrowing costs last December and has projected three rate hikes in 2017. In February, prices for final demand services increased 0.4 percent, accounting for more than 80 percent of the rise in the PPI. — Reuters