Consumer prices

The latest U.S. government data on retail sales and consumer prices may have shortened the odds that the Federal Reserve will raise interest rates again next month.

The Commerce Department reported Wednesday that retail sales rose 0.4% in January following an upwardly revised 1.0% gain the previous month. Economists polled by Reuters had forecast retail sales ticking up only 0.1%.

In a separate report, meanwhile, the Labor Department said the Consumer Price Index jumped 0.6 percent last month — the largest increase since February 2013 — as households paid more for gasoline, new motor vehicles, airline fares and clothing.

Core retail sales, excluding automobiles, gasoline, building materials and food services, increased 0.4 percent after a similar gain in December, topping economists’ forecasts of a 0.3% gain.

In the 12 months through January, the CPI increased 2.5%, the biggest year-on-year gain since March 2012. The Fed’s preferred measure of inflation is currently at 1.7%, below its target of 2.0%.

“All things consumer show the economy is starting the year off with a bang,” Chris Rupkey, chief economist at MUFG Union Bank in New York, told Reuters. “Interest rates are too low and with an economy this strong rates need to be put on a preset course higher.”

Following the reports, the financial markets were pricing in a 27% chance of an interest rate hike at the Fed’s March 14-15 policy meeting, up from 18% late on Tuesday.

The U.S. central bank has forecast three rate increases this year, though Michael Feroli, an economist at JPMorgan in New York, is still predicting only two. “We still think March is too early for them to hike, particularly given their propensity to prepare markets for a move,” he said.

Retail sales in January were boosted by purchases of electronics and appliances, while households also spent more on dining out, sporting goods and hobbies. December’s sales were revised upward from the previously reported 0.6% advance even though motor vehicle purchases posted their biggest drop in 10 months.

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