U.S. producer prices rose by the most in three years in August as the cost of energy surged, but underlying inflation pressures were contained, keeping the door open to additional monetary policy easing.
Other data on Thursday underscored the weakness in the labour market, a major concern for the Federal Reserve, with the number of Americans filing new claims for jobless benefits rising to a two-month high, although some of the gain was attributed to tropical storm Isaac.
The Labor Department said its seasonally adjusted producer price index increased 1.7 per cent last month, the largest gain since June 2009 and accelerating from July's 0.3 per cent rise.
Economists polled by Reuters had expected prices at farms, factories and refineries to rise 1.1 per cent last month.
Wholesale prices excluding volatile food and energy costs rose 0.2 per cent, slowing from a 0.4 per cent increase in July. The rise matched economists' expectations.
In a second report, the department said initial claims for state unemployment benefits rose 15,000 to a seasonally adjusted 382,000. Economists polled by Reuters had forecast claims rising to 370,000 last week.
A Labor Department official said tropical storm Isaac, which drenched parts of the country, accounted for about 9,000 of the claims filed last week. The number is not adjusted to take normal seasonal patterns into consideration.
The reports came as officials from the U.S. central bank were meeting for a second day to deliberate on policy.
The Fed is expected to announce the launch of a third round of the bond purchases at the end of the meeting, to spur the lackluster economic recovery.
The Fed decision, which could also include tweaks to its pledge to hold rates near zero at least through late-2014, is expected around 12:30 p.m.
"The latest (claims) report simply confirms what the Federal Reserve already knows about the state of employment and will only encourage it to further support the economy through wider use of its balance sheet," said Andrew Wilkinson, chief economic strategist at Miller Tabak in New York.
Even accounting for the storm, the report suggested little improvement in the labor market after job growth slowed sharply in August. The four-week moving average for new claims, a better measure of labor market trends, climbed 3,250 to 375,000, the highest since the middle of July.
Employers added 96,000 jobs last month, a step down from July's 141,000 count. While the unemployment rate dropped to 8.1 per cent in August from 8.3 per cent, it was because Americans gave up the search for work.
While the rise in overall wholesale inflation last month, could push up consumer prices, the impact could be temporary given sluggish job growth and tepid domestic demand.
Consumer inflation is currently below the Fed's 2 per cent target.
Overall producer prices last month were buoyed by a 6.4 per cent increase in energy prices, the biggest rise in three years.
Energy prices, which were pushed up by a jump in the cost of gasoline, accounted for more than 80 per cent of the rise in wholesale prices last month. Energy prices had dropped 0.4 per cent in July.
Food prices rose 0.9 per cent, the largest gain since November. Higher prices for dairy products accounted for a third of the increase in food prices last month. Food prices had increased 0.5 per cent the prior month and could remain elevated as a severe drought pushes up the cost of grain and soybeans.
In the 12 months to August, producer prices increased 2.0 per cent, the biggest gain since March, after advancing 0.5 per cent in July.
Outside food and energy, producer prices were restrained by a decline in the cost of passenger cars, which fell 0.2 per cent after rising 1.1 per cent in July. Light motor truck price increases slowed to 0.6 per cent after a advancing 1.6 per cent the prior month.
Pharmaceutical product prices increased 0.5 per cent, accounting for more than 30 per cent of the rise in core PPI last month.
In the 12 months to August, core producer prices increased 2.5 per cent after rising by the same margin the previous month.