U.S. producer prices post largest gain since 2012

[June 12, 2015]  WASHINGTON (Reuters) - U.S. producer prices in May recorded their biggest increase in more than 2-1/2 years as the cost of gasoline and food rose, suggesting that an oil-driven downward drift in prices was nearing an end.

The Labor Department said on Friday its producer price index for final demand increased 0.5 percent last month, the largest gain since September 2012. That followed a 0.4 percent decline in April.

In the year to May, the PPI fell 1.1 percent, marking the fourth straight 12-month decrease. Prices dropped 1.3 percent in the 12 months through April, the biggest fall since 2010.

Economists had forecast the PPI rising 0.4 percent last month and falling 1.1 percent from a year ago.

A sharp decline in crude oil prices since last year and a strong dollar have weighed on producer prices. While rising oil prices are easing some of the downward pressure on inflation, the upward trend in producer prices will be gradual because of the dollar's strength.
 

The greenback has gained about 13.2 percent against the currencies of the United States' main trading partners since June 2014.

The stabilization in producer prices should support views that the Federal Reserve will raise interest rates this year.

Last month, gasoline prices surged 17 percent, the largest increase since August 2009. Food prices rose 0.8 percent in May, the biggest gain in just over a year, snapping five straight months of declines.

Higher food prices were driven by a shortage of eggs after an outbreak of bird flu led to the culling of millions of chickens. Wholesale egg prices soared a record 56.4 percent last month.

While the spillover from producer prices to consumer prices has weakened, higher gasoline and food prices are likely to feed into the May consumer price index. May consumer price data will be published next week.

The volatile trade services component, which mostly reflects profit margins at retailers and wholesalers, increased 0.6 percent in May after falling 0.8 percent in the prior month.

May's rise likely reflects improving profit margins at services station, which had been pressured by falling gasoline prices.

A key measure of underlying producer price pressures that excludes food, energy and trade services dipped 0.1 percent last month after ticking up 0.1 percent in April. The so-called core PPI was up 0.6 percent in the 12 months through May.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.