U.S. producer prices accelerate amid broadening inflation pressures

APD NEWS

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U.S. producer prices increased by the most in eight months in January amid a surge in the cost of hospital outpatient care and goods such as food and motor vehicles, another sign that high inflation could persist through much of this year.

Broadening inflation pressures were underscored by other data on Tuesday showing a measure of prices received by factories in New York state surged to a record high in February, while manufacturers reported they continued to pay higher prices for inputs. The reports followed on the heels of news last week of a strong rise in consumer prices in January, with the annual inflation rate posting its largest increase in 40 years.

Financial markets have priced in a better-than-even chance that the Federal Reserve will raise interest rates next month by half a percentage point.

"This is further evidence of persistent and increasingly embedded inflationary pressure that should keep the Fed leaning towards even more hawkish policy," said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York. "We continue to expect data over the next month will support a 50-basis-point hike by the Fed in March."

The producer price index (PPI) for final demand jumped 1 percent last month, the biggest advance since May, after climbing 0.4 percent in December, the Labor Department said.

The PPI was boosted by a 0.7-percent increase in services, matching the gain in December.

Services were driven by a 1.6-percent rise in the cost of hospital outpatient care. There were also increases in wholesale retailing for machinery, vehicles, apparel, jewelry as well as footwear. The cost of hotel and motel accommodation rose as did freight transportation by trucks.

Portfolio management fees jumped 1.9 percent. But margins for fuels and lubricants retailing fell 9.7 percent. Airline fares dropped 4.2 percent.

Wholesale goods prices rebounded 1.3 percent after dipping 0.1 percent in December. A 0.8-percent rise in the prices of goods excluding foods and energy accounted for more than 40 percent of the broad increase in the costs of goods. Motor vehicle prices rose 0.7 percent.

Food prices advanced 1.6 percent, while energy products increased 2.5 percent. But prices for iron and steel scrap fell 10.7 percent. Healthcare, portfolio and airline fares are key components in the calculation of the personal consumption expenditures (PCE) price index, one of the inflation measures watched by the Fed.

In the 12 months through January, the PPI rose 9.7 percent. That followed a 9.8-percent surge in December. Year-on-year PPI is slowing as last year's large increases drop out of the calculation.

Economists polled by Reuters had forecast the PPI would gain 0.5 percent on the month and advance 9.1 percent on a year-on-year basis.

(Reuters)