WASHINGTON (Reuters) -U.S. producer prices increased more than expected in July amid a surge in the costs of services and goods, suggesting a broader pickup in inflation in the months ahead. The producer price index for final demand jumped 0.9% last month after being unchanged in June, the Labor Department's Bureau of Labor Statistics said on Thursday. Economists polled by Reuters had forecast the PPI rising 0.2%. Services prices soared 1.1%, the largest gain since March 2022, amid strong increases in machinery and equipment wholesaling, costs of portfolio management, hotels and motels, and road transportation of freight. Good prices vaulted 0.7%, the biggest gain since in January. There were strong increases in the prices of vegetables, meat and eggs. With the July report, the BLS ended the calculation and publication of approximately 350 indexes, including data from the PPI Final Demand-Intermediate Demand, special index, industry and commodity classifications. The agency has suffered years of underfunding under both Republican and Democratic administrations, a situation worsened by an unprecedented campaign by President Donald Trump's White House to remake the federal government through deep spending cuts and mass layoffs of public workers. The resource constraints have impacted the closely watched employment report and also resulted in the suspension of data collection for portions of the CPI basket in some areas across the country. This has raised concerns about the quality of the government-produced economic data, long viewed as the gold standard. The nomination of Heritage Foundation economist E.J. Antoni, a critic of the BLS, to head the statistics agency, is also adding another layer of worry over data quality. In the 12 months through July, the PPI increased 3.3% after advancing 2.4% in June. The pass-through from Trump's sweeping tariffs has so far been limited, but the PPI report supported economists' expectations for the import duties to drive up inflation in the coming months. The government on Tuesday reported a mild increase in consumer prices in July, though rising costs for services like dental care and airline tickets caused a measure of underlying inflation to post its largest gain in six months. While financial markets have priced in an interest rate cut from the Federal Reserve next month, rising services inflation and the expectation tariffs could still significantly boost goods prices left some economists doubtful of a resumption in policy easing in the absence of labor market deterioration. The U.S. central bank left its benchmark overnight interest rate in the 4.25%-4.50% range last month for the fifth-straight time since December. Prior to the PPI report, economists estimated the Personal Consumption Expenditures (PCE) Price Index, excluding the volatile food and energy components, increased 0.3% in July after a similar gain in June. That would raise the year-on-year increase in the so-called core PCE inflation to 2.9% from 2.8% in June. Core PCE inflation is one of the measures tracked by the Fed for its 2% target. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
