WASHINGTON, July 14 (Reuters) – Producer prices in the United States rose more than expected in June, suggesting that inflation could remain high as strong demand fueled by the recovery of the economy from the pandemic of COVID-19 continues to weigh on the supply chain.
The producer price index for final demand rose 1.0% last month after rising 0.8% in May, the Labor Department said on Wednesday. In the 12 months to June, the PPI jumped 7.3%. This was the largest year-over-year increase since November 2010 and followed a 6.6% gain in May.
Economists called by Reuters had forecast the PPI to rise 0.6% in June and 6.8% year-on-year.
Rising commodity prices and rising labor costs due to a shortage of volunteer workers are driving inflation out of the factory. With stocks at very low levels due to supply chain issues, producers easily pass the higher cost on to consumers.
The government reported on Tuesday that consumer prices rose the most in 13 years in June. Inflation was largely driven by sectors at the center of the economy’s reopening, although there were signs in June that it was spreading to other segments. Read more
Federal Reserve Chairman Jerome Powell is due to present the semi-annual monetary policy report to the US Congress later Wednesday and the attention of financial markets will be on his take on the latest inflation data. Read more
Powell has long argued that high inflation is transitory, a view shared by most economists and the White House. In a report to Congress last week, the US central bank said that as the “extraordinary circumstances” of the reopening subside, “supply and demand should align more and inflation should broadly align. lower “.
Most economists believe inflation has peaked or is about to peak, noting that some service prices depressed by the pandemic are approaching their pre-pandemic levels.
“Once prices return to pre-pandemic levels, the rise likely becomes more limited as consumers become price sensitive as they normally were,” said Alexander Lin, US economist at Bank of America Securities in New York.
The Fed cut its overnight key rate to near zero last year and is pumping money into the economy through monthly bond purchases. This super-easy monetary policy stance, COVID-19 vaccinations and nearly $ 6 trillion in government aid since the start of the pandemic in the United States in March 2020 are driving demand.
The Fed has indicated that it may tolerate higher inflation for a period of time to compensate for years in which inflation has remained below its target of 2%, a flexible average. The Fed’s preferred measure of inflation, the basic personal consumption expenditure price index, jumped 3.4% in May, the largest gain since April 1992.
Reporting by Lucia Mutikani Editing by Chizu Nomiyama
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