US retail sales rise; inflation posts largest gain in four years

WASHINGTON: US retail sales rose more than expected in January and consumer prices recorded their biggest gain in nearly four years, boosting prospects of an interest rate increase from the Federal Reserve next month.

The economy’s strengthening outlook was also bolstered by other data on Wednesday showing manufacturing and mining production rising last month as the drag from lower oil prices fades.

The reports came as Federal Reserve Chair Janet Yellen appeared to put a March interest rate hike on the table.

“All things consumer show the economy is starting the year off with a bang,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

“Interest rates are too low and with an economy this strong rates need to be put on a preset course higher.”

The Commerce Department said retail sales increased 0.4 per cent last month, buoyed by purchases of electronics and appliances. Households also spent more on dining out, sporting goods and hobbies.

December’s sales were revised up to show a 1.0 per cent rise instead of the previously reported 0.6 per cent advance.

Sales rose despite motor vehicle purchases posting their biggest drop in 10 months.

Compared to January last year retail sales were up 5.6 per cent. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4 per cent after a similar gain in December.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Economists polled by Reuters had forecast retail sales ticking up 0.1 per cent and core sales gaining 0.3 per cent last month.

In the wake of the data financial markets were pricing in a 27 per cent chance of an interest rate hike at the Fed’s March 14-15 policy meeting, up from 18 per cent late on Tuesday, according to CME Group’s FedWatch programme. The dollar briefly rose to a one-month high versus a basket of currencies on the data, before surrendering gains to trade marginally lower.

Prices for US government bonds fell, while Wall Street extended its record-setting run for a fifth day.

In a separate report, the Labor Department said its Consumer Price Index jumped 0.6 per cent last month as households paid more for gasoline, new motor vehicles, airline fares and clothing.

It was the largest increase since February 2013 and followed a 0.3 per cent gain in December.

In the 12 months through January, the CPI increased 2.5 per cent, the biggest year-on-year gain since March 2012. The CPI rose 2.1 per cent in the year to December.

Inflation is trending higher as prices for energy goods and other commodities rebound in response to a pick-up in global demand.

The so-called core CPI, which strips out food and energy costs, rose 0.3 per cent last month after increasing 0.2 per cent in December.