Underlying US inflation increased more than expected in February as rents and medical costs maintained their upward trend, which could keep the Federal Reserve on course to gradually raise interest rates this year.
Other data on Wednesday showed the housing market continuing to strengthen last month and manufacturing stabilising. While the Fed is expected to stand pat at its policy meeting on Wednesday, stirring inflation, a steady housing sector and tightening labour market conditions have raised the probability of a rate hike in June.
"The Fed could easily signal that rate hikes are coming, possibly sooner than most think. Today's numbers, especially the inflation report, is a warning that the days of no price pressures are behind us," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.
The Labour Department said its Consumer Price Index, excluding the volatile food and energy components, rose 0.3 percent last month after a similar gain in January.
That lifted the so-called core CPI 2.3 percent in the 12 months through February, the largest increase since May 2012, after it advanced 2.2 percent in January. Economists polled by Reuters had forecast the core CPI rising 0.2 percent last month and increasing 2.2 percent from a year ago.
The Fed has a 2 percent inflation target and monitors a price measure that has also pushed higher in recent months. The US central bank raised its benchmark overnight interest rate in December for the first time in nearly a decade.
The dollar rose against a basket of currencies, while prices for US Treasury debt fell. US stocks were little changed, though the S&P homebuilding index rose 0.34 percent as D.R. Horton Inc and Lennar Corp shares gained.
In a separate report, the Commerce Department said housing starts increased 5.2 percent to a seasonally adjusted annual pace of 1.18 million units last month, the highest level in five months.
Groundbreaking activity had been held back by adverse weather. While the rebound in housing starts offered a lift to first-quarter gross domestic product growth estimates, that was offset by a drop in utilities output as temperatures warmed up in February.
First-quarter growth is forecast around a 2 percent annual rate, an acceleration from the 1.0 percent rate logged in the final three months of the year.
In a third report, the Fed said industrial production declined 0.5 percent as mining and utilities tumbled. Industrial production rose 0.8 percent in January. But manufacturing output increased 0.2 percent last month after spiking 0.5 percent in January.
The rise in factory output added to manufacturing surveys in suggesting that the downturn in the sector, which accounts for 12 percent of the US economy, had probably run its course. Factories have been hit by dollar strength and lower oil prices.
"The overall outlook for the US industrial sector is beginning to look a little better," said Millan Mulraine, deputy chief US economist at TD Securities in New York.