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Supply Chain

US Producer Prices Increase In March, Driven By Higher Food Costs

US producer prices increased more than expected in March, boosted by rising health-care and food costs, pointing to a steady build-up of inflation pressures.

The Labor Department said on Tuesday that its producer price index for final demand rose by 0.3% last month, after increasing by 0.2% in February.

That lifted the year-on-year increase in the PPI to 3.0% from 2.8% in February. Economists polled by Reuters had forecast the PPI gaining 0.1% last month and rising 2.9% from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services rose by 0.4% last month, advancing by the same margin for a third straight month.

The so-called core PPI increased by 2.9% in the 12 months through March – the biggest increase since August 2014, after climbing by 2.7% in February.

The dollar pared losses against a basket of currencies after the data, while prices for US Treasuries fell.

Inflation Rise

The broad-based increase in wholesale prices supports views that inflation will pick up this year. Economists believe that a tightening labour market, weak dollar and fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending will push inflation toward the Federal Reserve's 2%  target this year.

The US Central Bank's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased by 1.6% in February after being stuck at 1.5% for four straight months.

The Fed increased interest rates last month and forecast two more rate hikes this year. Last month, the price of services increased by 0.3%, rising by the same margin for a third consecutive month. Services accounted for 70% of the increase in the PPI last month, but the cost of wholesale apparel, footwear and wireless communications services fell last month.

Wholesale Food Prices

Prices for goods rose by 0.3%, after slipping 0.1% in February. They were lifted by a 2.2% jump in wholesale food prices. That was the biggest increase since April 2014 and followed three straight monthly declines.

Last month, wholesale food prices were driven by a surge in the cost of unprocessed fish, chicken eggs, and fresh and dry vegetables.

News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine. 

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