February PPI increase fastest in 1-1/2 years

WASHINGTON (Reuters) - Producer prices surged in February at their fastest pace in just over 1-1/2 years, boosted by high food and energy prices, according to a government report on Wednesday that pointed to a build-up in pipeline inflation pressures.

The Labor Department said its seasonally adjusted index for prices paid at the farm and factory gate jumped 1.6 percent, the largest increase since June 2009 after rising 0.8 percent in January.

Economists polled by Reuters had expected producer prices to rise 0.7 percent last month. In the 12 months to February, producer prices increased 5.6 percent, the biggest rise since March, after advancing 3.6 percent in January.

The report came a day after the Federal Reserve said it expected the upward inflation pressure from energy and other commodities to prove transitory but that it would keep a close eye on inflation and inflation expectations.

The increase in wholesale prices last month was broad-based, with energy prices surging 3.3 percent -- the biggest increase since January 2010, after 1.8 percent the prior month.

Gasoline prices, which rose 3.7 percent, accounted for over 40 percent of the increase in the energy index. Food prices jumped 3.9 percent, the biggest increase since 1974.

Stripping out volatile food and energy costs, core producer prices rose 0.2 percent last month, matching expectations, and retreating from a 0.5 percent rise in January.

Last month, core PPI was lifted by 1.0 percent increase in apparel, which was the biggest rise since 1990, while passenger cars rose 0.6 percent, the Labor Department said.

In the 12 months to February, the core producer price index rose 1.8 percent, in line with expectations. It was the largest increase since August 2009 and followed a 1.6 percent increase in January.

(Reporting by Lucia Mutikani, Editing by Andrea Ricci)