United States producer prices increased at their fastest pace in 34 years last month, according to the US Labor Department.

The data, which suggests that inflationary pressures are building in the US economy, took the gloss off figures that suggested US retail sales grew at twice the expected pace in November.

The combination of stronger than expected consumer activity with worsening price pressures will add to the dilemma for the US Federal Reserve, as it comes under intense pressure to deliver further cuts in American interest rates.

On Tuesday, the Fed disappointed Wall Street's hopes as it ordered only a modest quarter-point cut in US rates and adopted a hawkish stance over the prospects for further reductions. Investors who had hoped for a half-point cut, or at least a signal of more cuts to come, sent US bluechip shares tumbling.

As today's data added to the quandary for the Fed over future rate decisions, and gave ammunition to hawks on its rate-setting Open Market Committee, US shares succumbed to further steep losses.

Evidence of building inflation and strong retail sales also erode the case for a further cut to US interest rates in the short term.

The US Commerce Department said that retail sales jumped by 1.2 per cent in November, double the gain economists had expected.

The increase, the biggest in six months, followed a much weaker 0.2 percent rise in retail sales in October. The November number eased concerns that US consumers are set to dramatically tighten their belts amid a housing slump and wider economic uncertainty.

Julian Jessop, of Capital Economics, said: “The big unknown at this stage is how far these figures were boosted by aggressive price discounting, but at least consumers were willing to take advantage.”

He added that the figures were boosted by a 6.8 per cent month-on-month increase in the value of gasoline sales, which reflected the biggest surge in pump prices since September 2005, in the wake of Hurricane Katrina.

They also took in a 1 per cent monthly increase in the value of food sales.

The Labor Department said that wholesale prices jumped by 3.2 per cent in November, on the back of a record 34.8 per cent rise in gasoline costs.

The core inflation figure, which strips out volatile energy and food costs, posted a 0.4 per cent gain in November. Economists had expected a reading of about 0.2 per cent.

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