June Retail Sales Rise as Prices Hold Steady

WASHINGTON —  U.S. consumer prices held steady in June and retail sales jumped, according to government reports Thursday that showed the economy on solid ground, with little evidence of inflationary pressure.

Stock prices moved higher on the data, which some analysts said showed the economy in a “sweet spot,” but prices for U.S. government bonds slipped as the retail sales strength was seen bolstering the case for Federal Reserve interest rate hikes.

The unchanged reading in the Labor Department’s consumer price index reflected a sharp 0.5% drop in energy prices. Analysts warned that this was unlikely to be repeated because gasoline prices have followed the cost of oil higher.

Still, the so-called core CPI, which strips out volatile food and energy costs, edged up a mild 0.1% for the second straight month, which, taken with a flat reading in April, suggested that underlying inflation pressures had waned.

A separate report from the Commerce Department showed that retail sales jumped an unexpectedly large 1.7% last month as shoppers took advantage of automaker discounts. Outside of autos, spending gained 0.7%.

Analysts cautioned that some of the spending strength might not hold but said the economy looked good right now.

“You have the perfect economic picture here -- strong spending with low inflation,” said Elisabeth Denison, an economist with Dresdner Kleinwort Wasserstein in New York.

Some analysts said the benign inflation data suggested that the Fed could soon call a halt to a yearlong campaign of interest rate hikes, but others said the central bank had to worry about the potential for wage-related price pressures as the job market tightened.

The Fed has raised rates nine times in a row, taking overnight borrowing costs to 3.25% from 1%. Futures markets expect at least two and maybe three more quarter-point increases by the end of the year.

The unchanged CPI reading, which followed the first drop in 10 months in May, slowed the year-on-year increase in prices to 2.5%, well off the 3.5% peak hit two months ago. It was the smallest 12-month gain since September.

Over the last 12 months, core inflation advanced 2%, the slimmest year-on-year rise since October.

In a third economic report, the Labor Department said first-time claims for state unemployment insurance benefits rose 16,000 last week to 336,000, their highest point since late May.