WASHINGTON (Reuters) - U.S. producer prices unexpectedly rose in October, but the underlying trend continued to point to a benign inflation environment that could persuade the Federal Reserve to keep interest rates very low a bit longer.
The Labor Department said on Tuesday its producer price index for final demand increased 0.2 percent, driven by a jump in prices in the services sector. The PPI had declined 0.1 percent in September.
October also saw the introduction of new motor vehicle models, which could have contributed to the surprise rise in prices received by the nation's farms, factories and refineries.
Passenger car prices increased 1.0 percent last month, the largest gain in five years.
Economists had expected producer prices to slip 0.1 percent last month. In the 12 months through October, producer prices increased 1.5 percent, the smallest advance since February, after rising 1.6 percent in September.
The underlying trend in producer inflation remains tame. A broader measure, which excludes food, energy and trade services, edged up only 0.1 percent last month after slipping 0.1 percent in September.
This measure, which accounts for about two-thirds of final demand, was up 1.6 percent in the 12 months through October.
Slowing global growth and falling oil prices are helping to keep a lid on inflation.
Fed officials largely view the current low inflation environment as transitory and believe the likelihood of inflation running persistently below the U.S. central bank's 2 percent target has diminished somewhat since early this year.
Still, muted price pressures mean the Fed will probably be in no hurry to raise its short-term interest rate from near zero, where it has been since December 2008. U.S. financial markets expect the first rate hike in mid-2015.
The dollar rose modestly against the yen and the euro, while prices for U.S. Treasury debt pared gains. U.S. stock index futures were little moved by the data.
Last month, prices for services rose 0.5 percent, the largest rise since July 2013, after slipping 0.1 percent in September. The rise largely reflected an increase in margins at wholesalers and retailers.
In October, energy prices fell 3.0 percent, declining for a fourth straight month. Food prices increased 1.0 percent, ending two straight months of declines.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)