WASHINGTON (Reuters) - Underlying U.S. producer prices increased solidly for a second straight month in May, boosted by a surge in the cost of hotel accommodation and gains in portfolio management service fees.

FILE PHOTO: Shoppers carry bags of purchased merchandise at the King of Prussia Mall, United States' largest retail shopping space, in King of Prussia, Pennsylvania, U.S., December 8, 2018. REUTERS/Mark Makela

The report from the Labor Department on Tuesday likely will support the Federal Reserve’s view that recent weak price readings are probably transitory, and that inflation will gradually move toward the U.S. central bank’s 2 percent target.

“There is no evidence of falling inflation in this report,” said John Ryding, chief economist at RDQ Economics in New York.

Producer prices excluding food, energy and trade services rose 0.4% last month, matching April’s gain, the government said. The so-called core PPI increased 2.3% in the 12 months through May after rising 2.2% in April.

Weaker energy and food prices, however, partially offset the increase in prices of services last month. That led the producer price index for final demand to edge up 0.1% in May after gaining 0.2% in April. In the 12 months through May, the PPI climbed 1.8%, slowing from April’s 2.2% advance.

Economists polled by Reuters had forecast the PPI would nudge up 0.1% in May and rise 2.0% on a year-on-year basis.

Fed policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May that has led financial markets to price in at least two interest rate cuts by the end of 2019.

President Donald Trump in early May slapped additional tariffs of up to 25% on $200 billion of Chinese goods, prompting retaliation by Beijing. Trump on Monday threatened further duties on Chinese imports if no deal was reached when he meets Chinese President Xi Jinping at a G20 summit later this month in Japan.

A tariff on all goods from Mexico to force authorities in that country to curb migrants, mostly from Central America, from crossing the border into the United States was narrowly averted after the two nations struck an agreement late on Friday.

Fed Chairman Jerome Powell said last week that the U.S. central bank was closely monitoring the implications of the trade tensions on the economy and would “act as appropriate to sustain the expansion.” A rate cut is not expected next Wednesday. Trump on Tuesday renewed his attack on the Fed and described low inflation as “a beautiful thing.”

The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, increased 1.6 percent in the year to April after gaining 1.5% in March. Data for May will be released later this month.

The dollar was flat against a basket of currencies, while U.S. Treasury prices fell. Stocks on Wall Street were trading higher.

STRONG HOTEL, PORTFOLIO FEES

The services-led increase in the core PPI last month is likely to translate into a slightly higher reading for other underlying inflation measures in May. According to a Reuters survey of economists, core consumer prices probably increased 0.2% last month after nudging up 0.1% in April. The consumer price data will be published on Wednesday.

Prices for hotel accommodation surged 10.1% in May, the most since April 2009. That accounted for nearly 80 percent of the rise in services prices in May. Services prices rose 0.3% after gaining 0.1% in April.

The cost of healthcare services increased 0.2% last month after increasing 0.3% in April. There were increases in the prices for both inpatient and outpatient care last month. Those healthcare costs feed into the core PCE price index.

Portfolio management service fees, identified by the Fed’s Powell as one of the transitory factors restraining inflation, rose 1.8% in May after surging 5.3% in April. These prices, which are being supported by a rebound in the stock market, are likely to lift the core PCE price index in May. The cost of passenger transportation services also increased last month.

“We continue to expect that core PCE inflation will not fall too much further from here and should return closer towards the 2% target later in the year and into 2020,” said Veronica Clark, an economist at Citigroup in New York.

Last month, wholesale energy prices fell 1.0% after rising 1.8% in the prior month. Goods prices slipped 0.2% last month after gaining 0.3% in April. Wholesale food prices fell 0.3% in May, led by a 32.1% tumble in the cost of eggs.

Core goods prices were unchanged for a second straight month. Upcoming data will be closely watched for the effects of the latest tariff on Chinese goods. Previous duties impacted prices for machinery, equipment and some household furniture goods.