WASHINGTON – Prices charged by U.S. producers rose at the fastest pace in four months, driven higher by the biggest monthly increase in energy prices in a year.
The Labor Department said Wednesday that its producer price index, which measures inflation pressures before they reach the consumer, increased 0.4 per cent in May after a 0.2 per cent rise in April. It was the biggest gain since a similar 0.4 per cent increase in January. Prices at the wholesale level had fallen in both February and March.
Core inflation, which excludes energy and food, was up 0.3 per cent in May, an acceleration from a modest 0.1 per cent rise in April, indicating that inflation, which has been running below the Federal Reserve’s preferred 2 per cent pace, could be starting to accelerate.
Fed officials were wrapping up two days of discussions on Wednesday. It was widely expected that the central bank will leave its key policy rate unchanged. The Fed raised the rate for the first time in nearly a decade in December but so far this year has declined to raise rates again.
But economists believe the central bank will end up raising rates at least twice this year as the labour market improves further and as inflation shows signs of accelerating after four years of running well below the Fed’s target.
The report on wholesale prices showed that energy prices jumped 2.8 per cent, the biggest one-month gain since a 5.7 per cent rise in May 2015. The increase was led by a 6.6 per cent rise in gasoline prices.
Gasoline prices, which had fallen sharply at the beginning of the year, have begun to rise. The AAA nationwide average for gas is currently $2.37, up from $2.22 a month ago, but still below the $2.80 where gas was a year ago.
Food prices were up 0.3 per cent in May, the biggest gain since a 0.9 per cent rise in January.
Overall wholesale prices are still down 0.1 per cent from a year ago while core prices are up a modest 1.2 per cent.