Gasoline prices boost retail sales and inflation

Retail sales were solid in November as the holiday shopping season got underway, but a good portion of consumer dollars went to higher-priced gasoline, which also pushed wholesale inflation up by the largest amount in 34 years.

The Commerce Department said on Thursday that retail sales rose 1.2 percent in November, twice the increase Wall Street economists were expecting and a bright sign that consumers, who fuel two-thirds of economic growth, are still hanging in as the economy wades through credit and housing market turmoil.

"These numbers should put some of the fears to rest that consumers are going to stay at home this holiday season. That's absolutely not going to happen," said Mark Vitner, an economist at Wachovia Securities in Charlotte, North Carolina.

Separately, the Labor Department said its producer price index, a gauge of prices received by farms, factories and refineries, shot up 3.2 percent as gasoline prices surged a record 34.8 percent.

That was the biggest monthly increase since August 1973 and was well ahead of analysts' expectations of a 1.5 percent gain.

The combination of higher inflation and a stronger-than-expected consumer sector weighed on prices of U.S. government debt as traders saw it diminishing chances of further interest rate cuts from the Federal Reserve.

U.S. stocks fell on Thursday as doubts grew about a plan unveiled on Wednesday by global central banks to unfreeze credit markets hit hard by the prolonged housing slump and related subprime mortgage disaster.

www.reuters.com