Producer prices rose at their fastest pace in a year in May, exacerbating concerns about inflation, while initial jobless claims fell last week in fresh signs of an accelerating US economy.
Prices received by farms, factories and refiners shot up a hefty and more-than-expected 0.8 percent last month, the largest jump since March 2003, the Labour Department said.
While food and energy prices both rose sharply, the department's core Producer Price Index, which strips out those volatile costs, gained a larger-than-expected 0.3 percent, adding to inflation jitters on Wall Street.
In a separate report, the Labour Department said first-time filings for state jobless aid fell 15,000 to 336,000 in the week ended June 12, their lowest level since early May.
While the Labour Department pinned some of that drop on the closure of state claims offices last Friday for the funeral of President Ronald Reagan, claims have been hovering at levels indicating an improving labour market.
The dollar initially rose against the euro and prices for US government bonds fell, pushing yields higher, as investors worried the batch of data signalled growing inflation pressure.
Also on Thursday, the Conference Board, a private business group, said its index of leading economic indicators rose 0.5 percent in May to 116.5, suggesting the US economy's momentum is likely to build in the coming months.
"The combination of the deeper-than-expected drop in initial state jobless claims and the three-tenths of a percent rise by core PPI tell us that investors still need to worry about the possibility of rising price inflation," said John Lonski, chief economist at Moody's Investors Service.
Economists polled by Reuters had expected a somewhat milder 0.6 percent rise in the PPI and had looked for a smaller 0.2 percent gain in the core index.
Federal Reserve officials meet on June 29-30 and are widely expected to push overnight interest rates up a notch from their current 1958 low of 1 percent as they begin a bid to head off inflation.
Fed officials have said they should be able to move rates up at a "measured" pace, but a pickup in inflation has fanned fears in the markets the Fed may need to move more aggressively.
"This shows that the Fed needs to be aware that inflation is coming back and start on the program of raising rates," said Gary Thayer, chief economist at A.G. Edwards and Sons in St. Louis.
The report on jobless claims offered further evidence of a strengthening in the US jobs market that has also helped open the door to higher interest rates.
The drop in first-time applications for unemployment aid to 336,000 showed a pace of layoffs slower than Wall Street had expected. Economists had looked for claims to edge lower to 345,000 from the 352,000 previously reported for the June 5 week.
A four-week moving average of claims, which smooths weekly volatility to provide a better picture of underlying trends, slipped 2,750 to 343,250. The average has been hovering since early March near levels not seen since early 2001, before the economy tipped into recession.
A drop in the overall number of unemployed workers on the benefit rolls has underscored the strides made in the labour market.
In the week ended June 5, the latest week for which data are available, the number of so-called continued claims rose by 31,000 to 2.9 million. However, a week earlier that figure had hit its lowest level since May 2001.
The report on producer prices showed energy prices shot up 1.6 percent in May, while food prices rose 1.5 percent.
Over the last 12 months, overall producer prices have risen 5 percent, their biggest 12-month gain since a 5.7 percent leap in December 1990, when oil prices were spiking in the wake of Iraq's invasion of Kuwait.
While higher prices for oil and food have played a big role in pushing costs higher, the pace of increase in core producer prices has also picked up.
The core PPI is up 1.7 percent over the last 12 months, the biggest rise since the period ending January 2001.
A 1.1 percent gain in the cost of light trucks and SUVs, a rebound from a 1 percent April drop, contributed to the rise in core producer prices last month. Drugs prices also climbed sharply, gaining 1.8 percent.
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