By Lucia Mutikani
WASHINGTON (Reuters) - U.S. producer prices increased slightly more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years.
The report published by the Labor Department on Wednesday also showed a pickup in underlying producer inflation last month. The data supports views of steadily rising price pressures, which will probably allow the Federal Reserve to increase interest rates two more times this year.
"Tariffs are negative for economic growth but they are also inflationary," said John Ryding, chief economist at RDQ Economics in New York. "We expect these price pressures will flow through into higher core inflation at the consumer level as the year unfolds."
The producer price index for final demand climbed 0.3 percent last month after rising 0.5 percent in May. In the 12 months through June, the PPI advanced 3.4 percent, the largest gain since November 2011. Producer prices increased 3.1 percent year-on-year in May.
In the 12 months through June, the core PPI advanced 2.7 percent after increasing 2.6 percent in May. Manufacturers have been facing a rise in the cost of inputs, but so far have not passed on most of the increases to consumers.
Inflation is gradually rising against the backdrop of a labor market that is viewed as being near or at full employment.
The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, hit the U.S. central bank's 2 percent target in May for the first time in six years.
The Fed raised interest rates in June for the second time this year and has forecast two more rate hikes by the end of 2018. U.S. financial markets were little moved by the data.
HEALTHCARE COSTS RISE
In June, the cost of services increased 0.4 percent after climbing 0.3 percent in May. A 21.8 percent jump in the index for fuels and lubricants retailing accounted for about 40 percent of the rise in the cost of services last month.
The cost of healthcare services rose 0.2 percent as a 1.0 percent surge in prices for hospital outpatient care offset slight declines in the cost of doctor visits and hospital inpatient care. Healthcare prices nudged up 0.1 percent in May.
Those healthcare costs feed into the core PCE price index.
There were also increases in the cost of transporting goods by road, likely reflecting an acute shortage of truck drivers. Truck transportation prices soared a record 1.3 percent in June.
But wholesale prices of apparel and footwear fell as did the cost of airline tickets.
Prices for goods edged up 0.1 percent last month after surging 1.0 percent in May. They were last month restrained by a 1.1 percent drop in food prices, which followed a 0.1 percent gain. Wholesale gasoline prices rose 0.5 percent after jumping 9.8 percent in May.
Excluding foods and energy, goods prices climbed 0.3 percent, rising by the same margin for a sixth consecutive month. Motor vehicle prices increased 0.4 percent in June, the biggest gain in seven months.
In a separate report on Wednesday, the Commerce Department said wholesale inventories increased 0.6 percent instead of the 0.5 percent gain it reported last month.
Stocks at wholesalers edged up 0.1 percent in April. They rose 5.9 percent year-on-year in May.
The component of wholesale inventories that goes into the calculation of gross domestic product - wholesale stocks excluding autos - increased 0.8 percent in May.
Inventory investment was neutral to GDP growth in the first quarter. The economy grew at a 2.0 percent annualized pace during the January-March period.
Sales at wholesalers accelerated 2.5 percent in May, the biggest increase since March 2011, after rising 1.4 percent in April. At May's sales pace it would take wholesalers 1.24 months to clear shelves, the lowest since November 2014, down from 1.27 months in April.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)
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