WASHINGTON, April 14 (Reuters) - U.S. producer prices increased less than expected in March as the cost of services was unchanged, but surging energy prices because of the war with Iran were fanning inflation pressures.

The Producer Price Index for final demand rose 0.5% last month after a downwardly revised 0.5% gain in  February, the Labor Department's Bureau of Labor Statistics said on Tuesday. 

A jump in energy prices was partially offset by steady prices for services. March's PPI data likely only showed the initial impact of the Middle East conflict. Economists polled by Reuters had forecast the PPI accelerating 1.1% after a previously reported 0.7% gain in February. 

In the 12 months through March, the PPI advanced 4.0% after increasing 3.4% in February.

Further increases are likely as oil prices shot up on Monday to more than $100 a ‌barrel after the U.S. military said it would blockade ships leaving Iran's ports. 

Oil prices have jumped more than 35% since the U.S.-Israeli war with Iran started at the end of February. 

The BLS reported last week that the Consumer Price Index logged its biggest monthly increase in nearly four years in March amid a record jump in the cost of gasoline and diesel.

The Federal Reserve tracks the Personal Consumption Expenditures price indexes for its 2% inflation target.

Prior to the PPI report, economists estimated that PCE inflation, excluding the volatile food and energy components, increased 0.2% in March after rising 0.4% for two consecutive months. That would translate to a year-on-year increase of 3.1%, up from 3.0% in February. Economists expect the oil price shock will have a moderate impact on the so-called core inflation.