US producer prices surge in February on services

WASHINGTON, March 18 (Reuters) - U.S. producer prices increased more than expected in February, and could accelerate further as the war in the Middle East boosts oil prices and the import pass-through persists.

The Producer Price Index for final demand surged 0.7% last month, lifted by services, after an unrevised 0.5% rise in January, the Labor Department's Bureau of Labor Statistics said on Wednesday. Economists polled by Reuters had forecast the PPI rising 0.3%.

The U.S.-Israeli war with Iran, which started at the end of February, has sent oil prices surging more than 40%. Economists expected the war's inflationary impact to show in the March consumer and producer price reports next month. The Federal Reserve is expected to hold interest rates steady at the end of a two-day policy meeting on Wednesday. U.S. central bank officials will ?submit new economic projections, which economists expect to show upgrades to inflation estimates. Financial markets are expecting only one rate cut this year. In the 12 months through February, the PPI increased 3.4% after advancing 2.9% in January. Some components of the PPI and Consumer Price Index go into the calculation of the Personal Consumption Expenditures price indexes, the inflation measures tracked by the Fed for its 2% inflation target.

Prior to the PPI data, economists estimated that the PCE price index, excluding the volatile food and energy components, increased 0.4% in February. That would mark the third straight month that the so-called core PCE price index would have risen by 0.4%, more than double the monthly pace of increase that economists say is needed on a sustained basis to bring inflation back to its target.

Core PCE inflation was estimated to have increased 3.1% year-on-year in February, which would match January's rise. The Bureau of Economic Analysis will publish the delayed February PCE inflation report next month. (Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)