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 per cent last month after a downwardly revised 0.5-per-cemt gain in February, the Labor Department’s Bureau of Labor Statistics said on Tuesday.
A jump in energy prices was partly 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 per cent after a previously reported 0.7 per cent gain in February.
In the 12 months through March, the PPI advanced 4.0 per cent after increasing 3.4 per cent 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.
U.S. and Iran begin a battle of economic endurance in the Strait of Hormuz
Oil prices have jumped more than 35 per cent 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 Expenditures price indexes for its 2 per cent inflation target. Prior to the PPI report, economists estimated that PCE inflation, excluding the volatile food and energy components, increased 0.2 per cent in March after rising 0.4 per cent for two consecutive months. That would translate to a year-on-year increase of 3.1 per cent, up from 3.0 per cent in February.
Economists expect the oil price shock will have a moderate impact on the so-called core inflation.