WASHINGTON (Reuters)

US producer prices increased more than expected in June, suggesting inflation could remain high as robust demand fueled by the economy’s recovery from the COVID-19 pandemic continues to strain the supply chain.

The producer price index (PPI) for final demand increased one per cent last month after rising 0.8 per cent in May, the Labor Department said on Wednesday (July 14). In the 12 months through June, the PPI surged 7.3 per cent. That was the biggest year-on-year rise since November 2010 and followed a 6.6 per cent advance in May.

Economists called by Reuters had forecast the PPI increasing 0.6 per cent in June and rising 6.8 per cent year-on-year.

Higher commodity prices and increased labor costs due to a shortage of willing workers are boosting inflation at the factory gate. With inventories at very low levels because of supply chain issues, producers are easily passing on the higher cost to consumers.

The government reported on Tuesday that consumer prices increased by the most in 13 years in June. Inflation has largely been driven by sectors at the center of the economy’s reopening, though there were signs in June that it was broadening to other segments.

Federal Reserve Chair Jerome Powell is due to present the semiannual Monetary Policy Report to the US Congress later on Wednesday and financial markets’ attention will be on his view of the latest inflation data.

Powell has long maintained 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 become better aligned, and inflation is widely expected to move down.”

Most economists believe inflation has peaked or is close to doing so, noting that some prices of services depressed by the pandemic are nearing their pre-pandemic levels.

“Once prices get back toward pre-pandemic levels presumably the upside becomes more limited as consumers become price-sensitive as they were in normal times,” said Alexander Lin, a US economist at Bank of America Securities in New York.

The Fed slashed its benchmark overnight interest rate to near zero last year and is pumping money into the economy through monthly bond purchases. That ultra-easy monetary policy stance, COVID-19 vaccinations and nearly $6 trillion in government relief since the pandemic started in the United States in March 2020 are whipping up demand.

The Fed has signalled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its two per cent target, a flexible average. The Fed’s preferred inflation measure, the core personal consumption expenditures price index, jumped 3.4 per cent in May, the largest gain since April 1992.