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U.S. Producer Prices Climb More Than Expected Amid Jump In Energy Prices

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Reflecting a sharp jump in energy prices, the Labor Department released a report on Wednesday showing a bigger than expected increase in U.S. producer prices in the month of May.

The Labor Department said its producer price index for final demand climbed by 0.5 percent in May after inching up by 0.1 percent in April. Economists had expected producer prices to rise by 0.3 percent.

The bigger than expected increase in producer prices was primarily due to a spike in energy prices, which shot up by 4.6 percent in May following a 0.1 percent uptick in April.

The report noted half of the 1.0 percent jump by the index for final demand goods was attributable to a 9.8 percent spike in gasoline prices.

Excluding food and energy prices, core producer prices rose by 0.3 percent in May after edging up by 0.2 percent in April. Core prices had been expected to show another 0.2 percent increase.

The stronger than expected core price growth came as prices for services increase for the fifth consecutive month, rising by 0.3 percent in May after inching up by 0.1 percent in April.

Prices for final demand trade services climbed by 0.9 percent and prices for final demand transportation and warehousing services increased by 0.7 percent.

Meanwhile, the Labor Department said the index for final demand services less trade, transportation, and warehousing was unchanged.

The report said the annual rate of producer price growth accelerated to 3.1 percent in May from 2.6 percent in April, climbing to its highest level in over six years.

The annual rate of growth in core producer prices also ticked up to 2.6 percent in May from 2.5 percent in the previous month.

"The rebound in producer price inflation in May supports our view that core consumer price inflation will trend higher over the rest of this year," said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, "That will keep the pressure on the Fed to keep raising interest rates once a quarter over the next year or so."

On Tuesday, the Labor Department released a separate report showing another modest increase in consumer prices in the month of May.

The Labor Department said its consumer price index rose by 0.2 percent in May, matching the increase seen in April as well as economist estimates.

Excluding food and energy prices, core consumer prices still increased by 0.2 percent in May after inching up by 0.1 percent in April. The core price growth also matched expectations.

The annual rate of consumer price growth accelerated to 2.8 percent in May from 2.5 percent in April, reaching its highest level since February of 2012.

Core consumer price growth also edged up to a fifteen-year high of 2.2 percent in May from 2.1 percent in the previous month.

by RTTNews Staff Writer

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