The U.S. economy is facing a troubling mix of higher prices and weak growth.
Underlying U.S. inflation rose to its highest level in nearly three years in May while a regional factory gauge posted a surprise contraction this month.
Americans consumers did get some relief on prices from lower gasoline costs which, if sustained, could help the economy emerge from a recent rough patch.
But in a trend that could trouble policymakers at the U.S. Federal Reserve, the consumer price index outside food and energy surged 0.3 percent in May.
That was the largest gain since July 2008, though some of the spike could be related to supply disruptions in the auto sector following the Japanese earthquake.
Separate reports showed a surprise contraction for manufacturing activity in New York State for June and a disappointing 0.1 percent rise in May industrial output, though the latter was partly the result of a pullback in utilities.
While few economists expect the United States to fall back into recession, a barrage of weak economic reports has raised fresh doubts about the economy's health.
I assume people will look at this as another reason the recovery is stalling, giving more fodder to the double dip (recession) theory, said Paul Radeke, vice president at KDV Wealth Management in Minneapolis.
Other data has shown that the consumer remains on track, suggesting that eventually manufacturing will catch up. However, this data suggests that process will take longer.
The housing sector, which was at the epicenter of the U.S. financial crisis and recession, also showed little sign of healing. Following a renewed decline in home prices in recent months, a homebuilder sentiment index published by an industry group plunged this month to its lowest since November 2010.
Yet the inflation readings, if sustained, put Fed officials in a tough spot. If the economy weakens further but inflation fails to come down, it would be difficult for them to justify another round of monetary stimulus, particularly given the controversy that surrounded its $600 billion bond-buying program launched back in November.
Core inflation pressures are a lot stronger than we've been seeing in recent months, said Dean Maki, head of U.S. economic research at Barclays Capital in New York. This will make the Fed more cautious on any additional actions.
U.S. stocks fell sharply and the dollar rallied as the U.S. weak data compounded worries over Greece's debt, with the S&P 500 index unofficially closing down 1.76 percent.
PARSING OUT INFLATION
U.S. inflation proved considerably firmer than expected in May despite lower fuel costs, with the overall CPI rising 0.2 percent, double analyst forecasts. In the year to May, prices climbed 3.6 percent, the largest rise since October 2008.
Gasoline prices dropped 2 percent last month after increasing 3.3 percent in April, but food prices proved less benign, rising 0.4 percent for a second month in a row.
It remained to be seen whether the rise in core inflation was merely a reflection of temporary pass-through from higher energy costs, which peaked in early May but have been abating since.
A glaring absence of upward pressure on wages suggested as much, and continues to give comfort to the Fed's more dovish members that the threat of inflation is remote.
Labor Department data showed the inflation-adjusted weekly earnings of U.S. workers fell 0.1 percent in May, and were down 1 percent over the last year.
Industrial output, while still growing, was at best anemic. The Fed data showed production at the nation's mines, utilities and factories edged up 0.1 percent in May, restrained by a second consecutive drop in auto output.
Still, manufacturing output rose 0.4 percent, bouncing back from an April slide as factories made up for production lost due to tornadoes in the South. Output at utilities plunged 2.8 percent.
Most economists still believe the recovery, while weak, is unlikely to falter. But a barrage of negative data was certainly making many less confident in that view.
A Reuters poll of economists released on Wednesday showed they now see U.S. gross domestic product growth averaging 2.6 percent this year, down from 2.7 percent in a May survey.