US retail sales recorded their smallest increase in six months in February as households cut back on motor vehicle purchases and discretionary spending, the latest indication that the economy lost further momentum in the first quarter. Other data on Wednesday showed a steady increase in inflation, with the consumer price index posting its biggest year-on-year increase in nearly five years in February. Firming inflation could allow the Federal Reserve to raise interest rates on Wednesday despite signs of slowing domestic demand.
"Nothing here to suggest the Fed shouldn't raise interest rates at the policy meeting that concludes later today," said Paul Ashworth, chief US economist at Capital Economics in Toronto.
The Commerce Department said retail sales edged up 0.1 percent last month, the weakest reading since August. But January's retail sales were revised up to show a 0.6 percent rise instead of the previously reported 0.4 percent advance.
Sales were likely held back by delays in issuing tax refunds this year as part of efforts by the government to combat fraud. Compared to February last year retail sales were up 5.7 percent.
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.
In a separate report, the Labour 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.
In February, motor vehicle sales fell 0.2 percent after declining 1.3 percent the prior month. Receipts at service stations slipped 0.6 percent, reflecting lower gasoline prices.
Sales at electronics and appliances recorded their biggest decline since December 2011. Sales at clothing stores were the weakest 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.
Sales at online retailers jumped 1.2 percent last month. Receipts at building material stores increased 1.8 percent. Americans also cut back on spending at restaurants and bars, and spent less on hobbies and sporting goods.