Data released by the Labor Department on Tuesday show companies are facing rising costs for an array of supplies, which may prompt them to increase prices on their products in the months ahead. The producer-price index rose 1.4% in May from the month before, partly reflecting a surge in crude-oil prices that pushed gasoline prices up 9.3%. Prices for other commodities also jumped.

The index for core prices, which excludes energy and food, rose by a more muted 0.2% in May from the month before, but was up 3% from a year earlier, the biggest jump on a yearly basis since 1991.

The inflation report "makes life a little bit more difficult for the Fed," said Joe Brusuelas, chief economist with Merk Investments, based in Palo Alto, Calif. The data on prices suggest the Fed "should raise rates, but they probably won't" because of continued strong concerns about the threats to economic growth.

In a separate report, the Commerce Department said construction of new homes dropped 3.3% in May to a seasonally adjusted annual rate of 975,000. Housing starts were down 32% from a year earlier. Permits for new-home construction, a gauge of future building activity, dropped 1.3% in May to an annual rate of 969,000.

Meanwhile, output at factories and other industries dropped in May for the second month in a row, the Federal Reserve reported.

The U.S. economy grew at a slight 0.9% annual rate in the first three months of this year and will likely turn in a similar performance for the April-through-June period. Recessions typically encompass two consecutive quarters of negative gross-domestic-product growth, but the National Bureau of Economic Research, the nonprofit group that determines when recessions begin and end, could still decide that a recession began during the first half of this year, based on indicators such as employment and industrial output. For example, the last recession, in 2001, had two quarters of negative GDP growth but they were not consecutive.

Industrial production was down 0.2% in May after falling 0.7% in April. Activity fell 0.1% from a year earlier, the first year-over-year decline since the 2001 recession. Industry capacity use -- which is used to gauge mounting activity and inflationary pressures -- dropped to 79.4%.

The drop in activity in sectors that are usually boosted by low interest rates suggests that, despite growing concerns about inflation, the Fed is unlikely to change rates at its policy meeting next Tuesday and Wednesday. Currently, the target for the Fed's benchmark federal-funds rate -- the rate at which banks lend each other funds over night -- is 2%.

The Commerce Department reported that the U.S. current-account deficit, which reflects international trade in goods and services as well as investment income flows, widened by $9.2 billion during the first quarter to $176.4 billion.

The deficit has narrowed since the beginning of last year, when it was $196.9 billion. That reflects a weak dollar that makes U.S. assets cheaper and increasing foreign buying. The deficit is now running at about 5% of gross domestic product.

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