U.S. manufacturing output bounced back in February, the latest signal of strength in an economy that is showing clear momentum after a near-stall at the end of last year.
Other reports on Friday showed the biggest increase in consumer prices in nearly four years last month as the cost of gasoline surged and a tempering in March of U.S. consumer sentiment and New York state manufacturing gains.
Factory production increased 0.8 per cent in February after a revised 0.3-per-cent decline the month before, the Federal Reserve said on Friday. Economists polled by Reuters had looked for a 0.4-per-cent gain.
The increase combined with a big rise in utilities' output to lead overall industrial production up by 0.7 per cent, a good sign for first quarter economic growth.
Separately, the Labor Department said its Consumer Price Index increased 0.7 per cent last month, the largest gain since June 2009, after being flat in January.
Gasoline accounted for about three quarters of the spike in consumer inflation, and so-called core prices advanced just 0.2 per cent, leaving the door open for the Federal Reserve to press ahead with its bond-buying stimulus.
"The way the data has been playing out it gives them a free hand to be extremely aggressive to bring down unemployment," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut.
Economists polled by Reuters had expected the CPI to advance 0.5 per cent. In the 12 months through February, it was up 2 per cent, the largest gain since October and an acceleration from January's 1.6 per cent.
Core prices, which strip out volatile food and energy costs, increased 2 per cent. While that was a also the largest increase since October, economists saw it as being within the Fed's comfort zone.
Policy makers at the central bank meet next week to assess the economy and are widely expected to keep purchasing $85-billion in bonds per month to spur even stronger economic growth. The Fed has said it would keep up asset purchases until it sees a substantial improvement in the labour market outlook.
Gasoline prices rose 9.1 per cent last month, the largest gain since June 2009, after falling 3 per cent in January. Prices at the pump, however, have declined in the past two weeks.
U.S. stocks opened slightly lower, while U.S. government debt prices were higher.
The pick up in inflation eroded household purchasing power, which could hurt spending. Average hourly earnings adjusted for inflation fell 0.6 per cent in February, and were up only 0.1 per cent compared with a year ago.
Consumer sentiment weakened in March, according to a Thomson Reuters/University of Michigan's. U.S. consumer sentiment tumbled to its lowest since December 2011 in early March, hit by dissatisfaction with government economic policies and as fewer Americans expected improvements in growth or the labour market.
Data on Wednesday showed a big price-related pickup in sales at gasoline stations in February, but other retail sales rose as well, underpinning expectations for solid first-quarter growth.
The Fed's report on industrial production further bolstered those expectations. The gain in manufacturing output reflected a big 1.2-per-cent jump in the production of long-lasting goods.
Auto production rose a sharp 3.6 per cent after a 4.9 per cent plunge in January, the Fed said.
In a separate report, the New York Federal Reserve Bank said its "Empire State" general business conditions index slipped to 9.24 in March from 10.04 in February, an indication growth in the factory sector could be cooling a bit.
The inflation report showed housing costs maintained their steady rise last month. Owners' equivalent rent, which accounts for about a third of the core CPI, rose 0.2 per cent after a similar gain in January.
Apparel prices fell 0.1 per cent after increasing 0.8 per cent in January. New motor vehicle prices fell 0.3 per cent after gaining 0.1 per cent the prior month.
Prices for used cars and trucks rose for a second straight month.