The U.S. Labor Department's headline measure of producer price inflation grew at 1.1% in March, up from February's 0.3% gain and higher than forecasts for a 0.6% gain. The core measure of producer price inflation, which excludes cost increases in food and energy, edged up by 0.2%, in line with economists' calls for a 0.2% increase in the month.

From a year ago, the core measure of producer price inflation was up 2.7%, a tick below forecasts for a 2.8% rise. The annual headline rate came in at 6.9%, higher than the consensus forecast of 6.2% for the 12-month period ending in March.

The total price of intermediate goods rose 2.3% on the month and posted a 10.5% gain from the same time a year ago. Excluding food and energy, the rise was 1.1% month-over-month and 5.5% on the year.

The cost of total crude goods rose 8.0% in March from February, while the year-over-year increase stood at 31.4%. Excluding food and energy, the rise was 3.5%, or 16.8% on the year.

Food prices jumped 2.0% in the month while energy increased 13.4%.

Prior to the release, economists from Bank of America said the headline PPI reading would largely reflect rising gasoline, fuel oil and natural gas prices. "This will push the headline CPI increase to an estimated 4.1% yoy. While lagged intermediate cost pressures will boost the core finished goods index, slowing economic activity will begin to put downward pressure on core consumer prices," they noted.

Jennifer Lee from BMO Capital Markets noted that the release would be closely watched given the current worries about surging grain, dairy prices and oil prices.

By Stephen Huebl and edited by Nancy Girgis,