WASHINGTON (Reuters) - New applications for U.S. jobless benefits unexpectedly fell last week while producer prices rebounded strongly in April, pointing to a tightening labor market and rising inflation that could spur the Federal Reserve to raise interest rates in June.
Labor market strength was also underscored by a sharp drop in the number of Americans on unemployment rolls to a 28-1/2-year low in the final week of April.
"The best labor market in nearly thirty years should tell Fed officials that additional monetary stimulus is not required. We expect them to put another rate hike notch on their belts at the upcoming June meeting," said Chris Rupkey, chief economist at MUFG Union Bank in New York.
Initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 236,000 for the week ended May 6, the Labor Department said on Thursday. Economists had forecast first-time applications for jobless benefits rising to 245,000.
Claims have now been below 300,000, a threshold associated with a healthy labor market, for 114 straight weeks. That is the longest such stretch since 1970, when the labor market was smaller. The labor market is close to full employment, with the unemployment rate at a near 10-year low of 4.4 percent.
The number of people still receiving benefits after an initial week of aid tumbled 61,000 to 1.92 million in the week ended April 29, the lowest level since November 1988.
Labor market momentum, also marked by a sharp rebound in job growth in April, has left financial markets anticipating further monetary policy tightening from the Fed's June 13-14 policy meeting.
The U.S. central bank increased its benchmark overnight interest rate by 25 basis points in March and has forecast two more rate hikes this year. The economy created 211,000 job in April after adding only 79,000 positions in March.
In a second report on Thursday, the Labor Department said its producer price index for final demand increased 0.5 percent last month after slipping 0.1 percent in March.
The PPI increased 2.5 percent in the 12 months through April, the biggest gain since February 2012, after advancing 2.3 percent in March. Economists had forecast the PPI rising 0.2 percent and gaining 2.2 percent from a year ago.
Prices for U.S. Treasuries fell on the claims and inflation data, while the dollar rose against a basket of currencies. U.S. stock index futures were marginally lower.
FADING DOLLAR, OIL DRAG
Producer prices are firming as the drag from a strong dollar and lower oil prices fades.
Prices for final demand services rose 0.4 percent in April, accounting for almost two-thirds of the increase in the PPI last month. They had dipped 0.1 percent in March.
The rise in the cost of services last month was driven by a 6.6 percent surge in prices for securities brokerage, dealing, investment advice and related services.
Prices for goods increased 0.5 percent after dipping 0.1 percent in March. Energy prices rose 0.8 percent, with the cost of gasoline jumping 3.9 percent. Energy prices declined 2.9 percent in March.
Food prices increased 0.9 percent after a similar increase in March. A key gauge of underlying producer price pressures that excludes food, energy and trade services surged a record 0.7 percent in April. The so-called core PPI edged up 0.1 percent in March.
The core PPI increased a record 2.1 percent in the 12 months through April, after advancing 1.7 percent in March.
The cost of healthcare services were unchanged after
nudging up 0.1 percent in March.
Inpatient healthcare services prices fell 0.2 percent last month, reversing March's gain. Outpatient care costs increased 0.6 percent, while physician care edged up 0.1 percent.
Those healthcare costs feed into the Fed's preferred inflation measure, the core personal consumption expenditures price index.
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)