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US Producer Price Index up 0.4% in May vs. 0.3% increase expected

May PPI up 0.4 percent

U.S. producer prices rose for a second straight month in May as the cost of energy products and services increased, but the lingering effects of a strong dollar and lower energy prices will likely keep inflation tame for a while.

The Labor Department said on Wednesday its producer price index for final demand increased 0.4 percent last month after rising 0.2 percent in April. In the 12 months through May, the PPI slipped 0.1 percent after being unchanged in April.

Economists polled by Reuters had forecast the PPI gaining 0.3 percent last month and slipping 0.1 percent from a year ago.

A surge in the dollar and the plunge in oil prices between June 2014 and December 2015 have dampened price pressures, keeping inflation below the Federal Reserve's 2 percent target.

Although the dollar has dropped 1.5 percent against the currencies of the United States' main trading partners this year and oil prices are near $50 per barrel, underlying inflation remains benign.

Last month, energy prices jumped 2.8 percent after increasing 0.2 percent in April. Energy prices accounted for two-thirds of the 0.7 percent rise in the cost of goods last month.

Prices for services rose 0.2 percent after inching up 0.1 percent in April. The increase reflected an increase in margins received by wholesalers and retailers.

A key measure of underlying producer price pressures that excludes food, energy and trade services dipped 0.1 percent last month after rising 0.3 percent in April.

The so-called core PPI was up 0.8 percent in the 12 months through May. The core PPI increased 0.9 percent in April.

Manufacturing in New York grew in June

A separate report showed factory activity in New York expanded in June, rebounding from a May decline as manufacturer orders and shipments rose.

The Federal Reserve Bank of New York says that its Empire State manufacturing index rose to 6 in June, after slumping to minus 9 the previous month. Any reading above zero points to expansion.

The figures indicate that New York factories are seeing slight improvements in their outlook, although the employment gauge of the index shows that hiring has been flat. Factory output nationwide has been weak this year as sluggish economic growth worldwide has hurt demand for U.S. exports.

A measure of new orders rose to 10.9, from minus 5.5 the previous month. And a gauge of shipments also turned positive at 9.32, up from minus 1.9.

The Associated Press contributed to this report.