U.S. retail sales rise; inflation posts largest gain in four years

U.S. retail sales rose more than expected in January and consumer prices recorded their biggest gain in nearly four years, boosting prospects of an interest rate increase from the Federal Reserve next month.

The economy's strengthening outlook was also bolstered by other data on Wednesday showing manufacturing and mining production rising last month as the drag from lower oil prices fades. The reports came as Federal Reserve Chair Janet Yellen appeared to put a March interest rate hike on the table.

The Commerce Department said retail sales increased 0.4 percent last month, buoyed by purchases of electronics and appliances. Households also spent more on dining out, sporting goods and hobbies.

December's sales were revised up to show a 1.0 percent rise instead of the previously reported 0.6 percent advance. Sales rose despite motor vehicle purchases posting their biggest drop in 10 months.

Compared to January last year retail sales were up 5.6 percent. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.4 percent after a similar gain in December.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Economists polled by Reuters had forecast retail sales ticking up 0.1 percent and core sales gaining 0.3 percent last month.

In the 12 months through January, the CPI increased 2.5 percent, the biggest year-on-year gain since March 2012. The CPI rose 2.1 percent in the year to December. Inflation is trending higher as prices for energy goods and other commodities rebound in response to a pick-up in global demand.

The so-called core CPI, which strips out food and energy costs, rose 0.3 percent last month after increasing 0.2 percent in December. That lifted the year-on-year core CPI increase to 2.3 percent in January from December's 2.2 percent rise.