US producer prices increase as expected in August; but key details firmer

WASHINGTON, Sept 10 (Reuters) - U.S. producer prices increased in August amid higher costs of goods, airline fares and hospital services, boosting the chances of an interest rate hike from the Federal Reserve next week.

The report from the Labor Department on Thursday followed news last week of a sharp acceleration in job growth in August. Airline fares and hospital services ‌are among the components that go into the calculation of the Personal Consumption Expenditures Price Indexes, the inflation measures tracked by the U.S. central bank for its 2% inflation target.

August's Consumer Price ‌Index data on Friday could shed more light on the inflation picture and further shape interest rate expectations for next week.

"This report points to cost increases in the pipeline and will support the case of those on the Committee who want to hike rates now," ​said Carl Weinberg, chief economist at High Frequency Economics.

The Producer Price Index for final demand rose 0.4% last month after an upwardly revised 0.1% gain in July, the Labor Department's Bureau of Labor Statistics said. The PPI was previously reported to have been unchanged in July.

Last month's increase in producer prices was in line with economists' expectations. In the 12 months through August, the PPI advanced 5.4% after rising 4.8% in July.

Energy prices increased 4.2% over the month as renewed hostilities between the United States and Iran boosted oil prices. Energy prices had declined for two straight months. Further increases are likely, with the benchmark Brent crude oil hitting $105 a barrel on Thursday.

Diesel prices soared 24.1%, accounting for ‌more than a third of the increase in the cost of producer ⁠goods, which accelerated 1.1%. Diesel prices are at record highs. Gasoline prices increased last month as did jet fuel.

"As the conflict with Iran drags on longer than many expected, inflation pressures are becoming increasingly entrenched, leaving investors in search of a catalyst strong enough to change the inflation narrative," said Jeffrey Roach, chief economist at LPL Financial. "At this ⁠rate, a hike in rates next week appears likely."

Wholesale food prices edged up 0.1% last month after dropping 0.9% in July. Producer goods prices rose 0.4% excluding the volatile food and energy components.

AIRLINE FARES SOAR, HOSPITAL PRICES RISE

The cost of services nudged up 0.1% after gaining 0.2% in July. Despite the muted rise, the cost of transporting goods by road jumped 2.0% and airline fares soared 4.2% after dropping 3.1% in July. The cost of hospital outpatient care climbed 0.4% while inpatient ​care ​increased 0.5%.