(Updates with Fed rates decision, market reaction)
* Retail sales increase 0.1 percent in February
* Core retail sales rise 0.1 percent, January revised up
* Consumer prices edge up 0.1 percent in February
* CPI accelerates 2.7 percent from year ago
By Lucia Mutikani
WASHINGTON, March 15 U.S. retail sales recorded
their smallest gain in six months in February amid delays in tax
refunds, but the biggest rise in the annual inflation rate in
nearly five years pointed to rising price pressures that could
support further interest rate hikes.
The marginal increase in retail sales reported by the
Commerce Department on Wednesday was the latest sign the economy
lost further momentum in the first quarter. Firming inflation
and a tight labor market encouraged the Federal Reserve to raise
rates on Wednesday for the second time in three months.
"Should inflation continue to firm and consumer spending
remain solid, we expect the Fed will hike again in June, and at
least three times this year," said Michael Hanson, chief
economist at TD Securities in New York.
The Commerce Department said retail sales edged up 0.1
percent last month, the weakest reading since August, amid
declines in purchases of automobiles and discretionary spending.
January's retail sales were, however, revised up to show a
0.6 percent rise instead of the previously reported 0.4 percent
advance. That left retail sales rising 5.7 percent in 12 months
through February, underscoring the strength in domestic demand.
Excluding automobiles, gasoline, building materials and food
services, retail sales rose 0.1 percent after an upwardly
revised 0.8 percent jump in January. These so-called core retail
sales, which correspond most closely with the consumer spending
component of gross domestic product, were previously reported to
have increased 0.4 percent in January.
The government delayed the issuing of tax refunds this year
as part of efforts to combat fraud.
"The later-than-usual processing of income tax refunds may
have hampered consumer spending. However, the IRS has now caught
up to last year's pace, and so spending could get a bump up in
March," said Gus Faucher, deputy chief economist at PNC
Financial in Pittsburgh.
Tightening labor market conditions, which are steadily
lifting wages, continue to underpin consumer spending. Even with
retail sales softening in February, domestic demand remains
strong enough to generate more inflation in the economy.
In a separate report, the Labor Department said its Consumer
Price Index ticked up 0.1 percent last month as a drop in
gasoline prices offset increases in the cost of food and rental
accommodation. That was the weakest reading in the CPI since
July and followed a 0.6 percent jump in January.
In the 12 months through February, the CPI accelerated 2.7
percent, the biggest year-on-year gain since March 2012. The CPI
rose 2.5 percent in the year to January. Inflation is firming in
part as the 2015 drop, which was driven by lower oil prices,
fades from the calculation.
The so-called core CPI, which strips out food and energy
costs, increased 0.2 percent last month as new motor vehicle
prices fell and apparel prices moderated after spiking in
January. The core CPI increased 0.3 percent in January.
In the 12 months through February, the core CPI increased
2.2 percent after advancing 2.3 percent in January. It was the
15th straight month the year-on-year core CPI remained in the
2.1 percent to 2.3 percent range.
The Fed has a 2 percent inflation target and tracks an
inflation measure which is currently at 1.7 percent. The U.S.
central bank raised its overnight benchmark interest rate by 25
basis points to a range of 0.75 percent to 1.00 percent.
The Fed's policy-setting committee, however, did not flag
any plan to accelerate the pace of monetary tightening this
year, with officials sticking to their outlook for two more rate
hikes. The Fed lifted rates once in 2016.
The dollar fell to a two-week low against a basket of
currencies, while prices for U.S. Treasuries rallied. Stocks on
Wall Street rose to session highs.
February's retail sales added to January's weak reports on
trade, construction and business spending in suggesting sluggish
economic growth in the first quarter. The Atlanta Fed is
forecasting GDP rising at a 0.9 percent annualized rate in the
With the labor market near full employment, slowing growth
probably understates the health of the economy and GDP tends to
be weaker in the first quarter because of calculation issues
that the government has acknowledged and is working to resolve.
In February, motor vehicle sales fell 0.2 percent and
receipts at service stations slipped 0.6 percent, reflecting
lower gasoline prices. Americans also cut back on dining out and
spent less on hobbies and sporting goods.
Sales at electronics and appliances recorded their biggest
decline since December 2011. Sales at clothing stores saw their
largest drop in nearly a year. Retailers including J.C. Penney
Co Inc, Abercrombie & Fitch and Macy's Inc
are scaling back on brick-and-mortar operations amid increased
competition from online retailers, led by Amazon.com.
Online retail sales jumped 1.2 percent last month. Receipts
at building material stores increased 1.8 percent.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)