U.S. retail sales increased broadly in April while consumer prices rebounded, pointing to an acceleration in economic growth and steadily rising inflation that could keep the Federal Reserve on track to raise interest rates next month.
The reports on Friday added to data on the labor market in suggesting that economic activity picked up at the start of the second quarter after almost stalling in the first three months of the year.
The Commerce Department said retail sales rose 0.4 percent last month after an upwardly revised 0.1 percent gain in March. Sales rose 4.5 percent in April on a year-on-year basis.
Economists had forecast overall retail sales increasing 0.6 percent last month. Excluding automobiles, gasoline, building materials and food services, retail sales gained 0.2 percent after advancing 0.7 percent in March.
These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.
Prices of U.S. Treasuries extended gains after the data, while U.S. stock index futures slightly added to losses. The dollar .DXY was weaker against a basket of currencies.
Fed funds futures show traders see a 78.5 percent chance of a rate hike at the Fed’s June 13-14 policy meeting. But the likelihood that the U.S. central bank will raise rates twice before the end of the year fell after Friday’s data.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 0.3 percent annualized rate in the first quarter, the weakest pace since the fourth quarter of 2009. That contributed to holding down first-quarter GDP growth to a 0.7 percent rate.
In a separate report on Friday, the Labor Department said its Consumer Price Index rose 0.2 percent after dropping 0.3 percent in March. The rise in prices suggested that March’s drop, which was the first in 13 months, was an aberration.
In the 12 months through April, the CPI increased 2.2 percent. While that was a slowdown from March’s 2.4 percent increase, it still exceeded the 1.7 percent average annual increase over the past 10 years.
Gasoline prices jumped 1.2 percent after falling 6.2 percent in March. Food prices rose 0.2 percent, with the cost of food consumed at home increasing 0.2 percent amid a surge in prices of fresh vegetables.
The so-called core CPI, which strips out food and energy costs, edged up 0.1 percent last month, reversing March’s 0.1 percent dip. The monthly core CPI was restrained by declines in the prices of wireless phone services, medical care, motor vehicles and apparel.
TIGHTENING LABOR MARKET
In April, rental costs increased 0.3 percent after a similar gain in March. Owners’ equivalent rent of primary residence rose 0.2 percent, matching March’s increase.
Signs of firming economic growth could bolster expectations of a Fed rate hike next month. Consumer spending is being supported by a tightening labor market, marked by an unemployment rate at a 10-year low of 4.4 percent.
The core CPI increased 1.9 percent year-on-year, the smallest gain since October 2015, after rising 2.0 percent in March. Still, April’s increase was above the 1.8 percent average annual increase over the past decade.
Motor vehicle sales increased 0.7 percent in April after declining 0.5 percent in March. Sales at building material stores rebounded 1.2 percent last month after slumping 1.7 percent in March. Receipts at electronics and appliance stores increased 1.3 percent, adding to March’s 2.2 percent jump.
But sales at clothing stores fell 0.5 percent. Department store retailers have been hurt by declining traffic in shopping malls and increased competition from online retailers, led by Amazon.com (AMZN.O).
Retail giant Macy’s Inc (M.N) on Thursday reported a 4.6 percent drop in sales in the first quarter.
Sales at online retailers jumped 1.4 percent in April. Receipts at restaurants and bars gained 0.4 percent while sales at sporting goods and hobby stores accelerated by 0.6 percent.