US Producer Price Index up 0.1% in Jan vs. 0.2% drop expected

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U.S. producer prices unexpectedly rose in January as margins for wholesale machinery and equipment increased, but lower energy prices and a strong dollar continue to keep inflation in check.

The Labor Department said on Wednesday its producer price index edged up 0.1 percent after slipping 0.2 percent in December. In the 12 months through January, the PPI decreased 0.2 percent after declining 1.0 percent in December.

Economists polled by Reuters had forecast the PPI dropping 0.2 percent last month and falling 0.6 percent from a year ago.

The index for final demand services increased 0.5 percent in January, increasing for a third straight month. A 4.0 percent jump in margins for machinery and equipment accounted for nearly half of the increase in prices for services last month.

There were also increases in prices related to securities brokerage and dealing, loan services, apparel, footwear and accessories retailing, as well as fuels and lubricants retailing.

Despite the rise in the cost of services last month, lower oil prices and a strong dollar continue to pressure wholesale prices, which is contributing to holding inflation well below the Federal Reserve's 2 percent target.

Benign inflation, a shaky economic outlook and a sharp stock market sell-off, which has tightened financial market conditions, have cast doubts on whether the U.S. central bank will raise interest rates this year.

The Fed hiked its key overnight interest rate in December for the first time in nearly a decade.

In January, energy prices fell 5.0 percent after sliding 3.5 percent in December. Wholesale food prices rose 1.0 percent after declining 1.4 percent in December.

Goods prices fell 0.7 percent after a similar drop in December. A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent last month after advancing by the same margin in December.

The so-called core PPI was up 0.8 percent in the 12 months through January.