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Rise in US Producer Prices Point to Firming Inflation
Rise in US Producer Prices Point to Firming Inflation

Rise in US Producer Prices Point to Firming Inflation

Rise in US Producer Prices Point to Firming Inflation

US producer prices increased more than expected in February as the cost of services such as hotel accommodation pushed higher and the year-on-year 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 on Wednesday, Reuters reported.

“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 on Tuesday that its producer price index for final demand increased 0.3% last month after rising 0.6% in January. Economists polled by Reuters had forecast a 0.1% uptick.

In the 12 months through February, the PPI jumped 2.2%, the biggest advance since March 2012 and ahead of the 2% gain forecast in the Reuters poll. It followed a 1.6% increase in January.

The fairly strong producer inflation readings came as Fed officials gathered on Tuesday 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% 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.

 

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