U.S. producer prices soar in June, beat economists forecast

Producer prices in the United States increased more than expected in June as inflation rise continues to pressure businesses to pass on higher costs to consumers.

According to Labor Department data released Wednesday, the producer price index (PPI) for final demand climbed 1% from the previous month and 7.3 % from June of last year. Excluding volatile food and energy components, the core PPI increased 1%, the biggest on record, and was up 5.6 % from a year ago.

Higher commodity prices and higher labor expenses as a result of a labor shortage are driving up factory-gate inflation. Because stocks are low due to supply chain difficulties, manufacturers simply pass on the higher costs to consumers.

A Bloomberg survey of experts predicted a 0.6 % month-over-month increase in the total PPI and a 0.5 % gain in the core number. The yearly gains were the highest since statistics began in 2010.

In a separate report on Tuesday, the government announced that consumer prices rose by the highest in 13 years in June. Inflation has been driven mostly by industries at the center of the economy's reopening, though there were hints in June that it was spreading to other sectors.

According to the PPI data, prices for goods grew 1.2 % after increasing 1.5 % the previous month, while the cost of services increased 0.8 %, the most since the beginning of the year. Almost 60% of the entire PPI increase was attributable to services, according to the Labor Department.

Liquefied petroleum gas, plywood, and aluminum base scrap were among the commodities that increased by double digits from the previous month.

Producer prices excluding food, energy, and trade services, a measure typically favored by economists because it excludes the most volatile components, climbed 0.5 % from the previous month and 5.5 % from the last year, Bloomberg reported.

Federal Reserve Chair Jerome Powell is scheduled to deliver the semiannual Monetary Policy Report to the U.S. Congress later on Wednesday, and financial markets will be paying close attention to his assessment of the latest inflation statistics.

The Fed has indicated that it is willing to tolerate higher inflation for a while to compensate for years when inflation was below 2 %. A key inflation indicator that the Federal Reserve uses to make policy decisions rose 3.4% in May, the fastest increase since April 1992.

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