By Lucia Mutikani
WASHINGTON (Reuters) - U.S. producer prices unexpectedly rose in October, but the underlying trend continued to point to a benign inflation environment that could bolster the Federal Reserve's resolve to keep interest rates very low a bit longer.
The Labor Department said on Tuesday its producer price index increased 0.2 percent, driven by a jump in prices for services, after slipping 0.1 percent in September.
However, the so-called core PPI, which excludes food, energy and trade services, edged up only 0.1 percent after dipping 0.1 percent in the prior month.
"There is no inflation pressure building that could cause the Fed to want to move earlier in terms of their (rates) lift off," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
The U.S. central bank has kept its short-term rates near zero since December 2008, and most economists expect the first rate hike in mid-2015.
A separate report showed homebuilder sentiment rose in November amid optimism about home sales.
The dollar fell against a basket of currencies after the inflation data, while prices for U.S. Treasury debt rose. U.S. stocks were marginally higher.
Economists had expected prices received by the nation's producers to slip 0.1 percent last month. October saw the annual introduction of prices for new motor vehicle models, which can cause volatility in the series.
In the 12 months through October, producer prices increased 1.5 percent, the smallest advance since February. The core PPI, which covers about two-thirds of final demand, increased 1.6 percent.
Falling oil prices and still-tepid wage growth are helping to keep inflation below the Fed's 2 percent target.
Last month, prices for services rose 0.5 percent, the largest gain since July 2013. That was largely due to an increase in margins at wholesalers and retailers, which some economists said reflected an effort by producers to take advantage of the extra cash a drop in energy prices has left in consumers' wallets.
Energy prices fell 3.0 percent in October, the fourth straight monthly decline.
"Knowing that households have enjoyed (a) massive boost in purchasing power, retailers may have tried to secure their share of the windfall profit by raising prices," said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.
Wholesale passenger car prices recorded their biggest gain in five years, while food prices increased for the first time in two months.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)