US core producer prices rose to their highest rate in more than two years in January, hinting at a potentially troubling build-up in inflationary pressures.
A separate dataset from the Commerce Department showed new housing starts jumped 14.6 per cent in January from December to their highest level since September, beating economists' forecasts but still a lower level than January 2010.
The core producer price index, excluding food and energy, rose 0.5 per cent, the biggest gain since October 2008, new Labor Department data has shown.
The rise, which exceeded economists' expectations for a 0.2 per cent gain, reflected a jump in pharmaceutical preparations, which accounted for 40 per cent of the increase.
"The price increase might be a little troubling because it suggests that inflation is spreading across all raw materials," said James Meyer, chief investment officer at Tower Bridge Advisors in West Conshohocken, Pennsylvania.
"If you print money and have a stronger economy you're going to have some inflationary pressures."
The rise in core PPI comes at a time when a surge in commodity prices has caused most advanced economies to raise red flags on inflation, but the Fed has so far shown little concern about a pick-up in price pressures.
A separate report from the Federal Reserve showed industrial production fell unexpectedly in January, largely because of a drop in utilities output as temperatures returned to normal after an unusually cold December.
January output fell 0.1 per cent after an upwardly revised 1.2 per cent jump in December, when the cold caused heating demand to spike.
The drop was the first decline in output since June 2009 and was well below the median forecast for a 0.5 per cent increase in a Reuters poll of economists after December's originally reported 0.8 per cent gain.
The Commerce Department said housing starts jumped 14.6 per cent to a seasonally adjusted annual rate of 596,000 units from 520,000 units in December.
Economists polled by Reuters had forecast housing starts edging up to a 554,000-unit rate. Compared to January last year, residential construction was down 2.6 per cent.
Groundbreaking last month was lifted by a 77.7 per cent jump in volatile multi-family homes. Single-family home construction fell 1.0 per cent.
The housing market recovery is being hobbled by an over-supply of homes that is depressing prices and high unemployment.
City A.M. Reporter