Washington — US producer prices increased more than expected in May, leading to the biggest annual gain in nearly six-and-a-half years, but underlying producer inflation remained moderate.

The US labour department said on Wednesday that its producer price index (PPI) for final demand rose 0.5% last month, boosted by a surge in petrol prices and continued gains in the cost of services. The PPI edged up 0.1% in April.

In the 12 months up end-May, the PPI increased 3.1%, the largest advance since January 2012. Producer prices rose 2.6% year-on-year in April. Economists polled by Reuters had forecast the PPI gaining 0.3% from the prior month and rising 2.8% from a year ago.

A key gauge of underlying producer price pressures that excludes food, energy and trade services nudged up 0.1% last month. The so-called core PPI rose by the same margin in April. In the 12 months through May, the core PPI rose 2.6% after advancing 2.5% in April.

The dollar pared losses against a basket of currencies after the data’s release, while US treasury yields rose. US stock index futures were trading higher.

US Federal Reserve officials were due to resume their two-day policy meeting and are expected to raise interest rates for a second time this year later on Wednesday, encouraged by steadily rising inflation and a rapidly tightening labour market.

The renewed upward trend in producer prices strengthens expectations that inflation will pick up this year and likely breach the US central bank’s 2% target.

Regional factory surveys have shown an acceleration in raw material prices this year. So far, manufacturers have not passed on these higher costs to consumers. A report on Tuesday showed monthly consumer prices rising moderately in May.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 1.8% year-on-year in April after a similar gain in March.

In May, prices for goods surged 1.0%, accounting for 60% of the rise in the PPI. Goods prices were unchanged in April. In May, they were boosted by a 9.8% jump in the price of petrol. Wholesale petrol prices slipped 0.4% in April.

Prices for steel mill products surged 4.3% in May, the largest rise since February 2011, likely reflecting steel import tariffs imposed in March by the Trump administration. The cost of these products could rise further after the government, this month, widened the duties to steel imports from the EU, Canada and Mexico.

Wholesale food prices edged up 0.1% last month after declining 1.1% in April. Excluding foods and energy, goods prices increased 0.3%, rising by the same margin for a third straight month.

The cost of services increased 0.3% after nudging up 0.1% in April. Services were driven by a 0.9% rise in margins for trade services.

The cost of healthcare services ticked up 0.1% after falling 0.2% in April. These costs feed into the core PCE price index.