US markets closed lower on Thursday as traders digested the latest inflation numbers and await a government report on employment -- a key data point weighing on future interest rate decisions.

The Federal Reserve's preferred inflation gauge, the personal consumption expenditures (PCE) price index, ticked up to 3.3 percent from a year ago last month, said the Commerce Department.

A separate report showed that initial jobless claims fell last week, running at levels indicating that the labor market remains tight.

The Dow Jones Industrial Average closed 0.5 percent lower at 34,721.

The S&P 500 edged down 0.2 percent to 4,507, and the Nasdaq Composite Index inched up 0.1 percent to 14,034.

Thursday's data was "probably widely viewed as just fine," Craig Erlam of the OANDA trading platform told AFP.

It was largely in line with expectations and "good enough to support the case for a pause next month from the Fed" if backed by other data points, but not enough to convince traders that US inflation is racing towards policymakers' two percent target, he added.

"It's good enough for now but there's still a lot of improvement needed over the coming months," said Erlam.

Meanwhile, investors are looking towards payroll numbers on Friday -- a key focus for the central bank as well.

Adam Sarhan of 50 Park Investments noted that high demand has been a main driver of inflation.

"If we see demand cool off a bit or slow down," with people losing jobs or companies hiring less, that could point to inflation slowing further, he said.

"It's perfectly normal and healthy (for the market) to pause before a big data point like the jobs report tomorrow," he said. (AFP)