US retail sales increased broadly in April while consumer prices rebounded, pointing to a pickup in economic growth and a gradual rise in inflation that could keep the Federal Reserve on track to raise interest rates next month. The reports on Friday added to labour market data in suggesting the near stall in economic activity in the first quarter was an anomaly. But a moderation in year-on-year inflation led financial markets to dial down expectations of at least two more rate increases this year.
"The economy picked it up a notch from the slow start earlier this year, but the inflation fires are not burning brightly and this will likely keep the Fed on just a gradual pace for interest rate hikes later this year," said Chris Rupkey, chief economist at MUFG Union Bank in New York.
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.
Consumer spending, which accounts for more than two-thirds of US 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 Labour 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.
Prices of US Treasuries rose after the data. US stocks were trading lower and the dollar fell against a basket of currencies.
Gasoline prices jumped 1.2 percent after falling 6.2 percent in March. Food prices rose 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.
Rental costs increased 0.3 percent after a similar gain in March. 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.
Consumer spending is being supported by a tightening labour market, marked by an unemployment rate at a 10-year low of 4.4 percent. 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.
Retailer J.C. Penney Co Inc said on Friday its net loss widened to $180 million, or 58 cents per share, in the first quarter. On Thursday, Macy's Inc reported a 4.6 percent drop in first-quarter sales.
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.