WASHINGTON- U.S. producer prices increased more than expected in January as supply chains remained snarled, another sign that high inflation could persist through much of this year.

The producer price index for final demand jumped 1.0% last month after climbing 0.4% in December, the Labor Department said on Tuesday. In the 12 months through January, the PPI increased 9.7%. That followed a 9.8% surge in December.

Year-on-year PPI is slowing as last year's large increases drop out of the calculation. Economists polled by Reuters had forecast the PPI gaining 0.5% and advancing 9.1% year-on-year.

The government reported last week a strong rise in consumer prices in January, with the annual inflation rate posting its largest increase in 40 years.

The hot inflation readings led financial markets to price in a better-than-even chance of a 50 basis points interest rate hike from the Federal Reserve next month.

Inflation is running well above the U.S. central bank's 2% target. Economists are expecting as many as seven rate hikes this year. Inflation pressures are also coming from strong wage gains amid tightening labor market conditions.

"While risks to inflation remain to the upside and are of great concern to the Fed, we continue to believe inflation should moderate in coming months," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina. "Even so, inflation will continue to run well ahead of pre-pandemic levels and therefore remain a key challenge for policymakers, businesses, and consumers alike."

A shift in spending to goods from services during the COVID-19 pandemic and trillions of dollars in government pandemic relief, boosted demand, which has outpaced supply, igniting inflation. An acute shortage of workers on factory floors and other places along the supply chain are making it difficult to get products to markets.

Supply bottlenecks had shown signs of easing towards the end of 2021, but that progress stalled as infections, driven by the Omicron variant raged across the globe. Though cases are falling significantly in the United States, they are surging in Asia, a major source of raw materials for U.S. factories.

Excluding the volatile food, energy and trade services components, producer prices rose 0.9% in January. The so-called core PPI gained 0.4% in December. In the 12 months through January, the core PPI increased 6.9% after rising 7.0% in December.

(Reporting By Lucia Mutikani Editing by Chizu Nomiyama) ((Lucia.Mutikani@thomsonreuters.com; 1 202 898 8315; Reuters Messaging: lucia.mutikani.thomsonreuters.com@reuters.net))