US producer prices increase less than expected in March

U.S. producer prices increased less than expected in March as the cost of services was unchanged, but surging energy prices because of the war with Iran were fanning inflation pressures.

The Producer Price Index for final demand rose 0.5 percent last month after a downwardly revised 0.5 percent gain in February, the Labor Department's Bureau of Labor Statistics said on Tuesday.

A jump in energy prices was partially offset by steady prices for services. March's PPI data likely only showed the initial impact of the Middle East conflict. Economists polled by Reuters had forecast the PPI accelerating 1.1 percent after a previously reported 0.7 percent gain in February.

In the 12 months through March, the PPI advanced 4.0 percent after increasing 3.4 percent in February.

Further increases are likely as oil prices shot up on Monday to more than US$100 a barrel after the U.S. military said it would blockade ships leaving Iran's ports.

Oil prices have jumped more than 35 percent since the U.S.-Israeli war with Iran started at the end of February.

The BLS reported last week that the Consumer Price Index logged its biggest monthly increase in nearly four years in March amid a record jump in the cost of gasoline and diesel.

The Federal Reserve tracks the Personal Consumption Expenditure price indexes for its 2 percent inflation target.

Prior to the PPI report, economists estimated that PCE inflation, excluding the volatile food and energy components, increased 0.2 percent in March after rising 0.4 percent for two consecutive months. That would translate to a year-on-year increase of 3.1 percent, up from 3.0 percent in February. Economists expect the oil price shock will have a moderate impact on the so-called core inflation.

Reuters