Government Reports Strong Sales, Little Inflation

Retail sales jumped 1.7% in June, while the CPI is flat.
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Retail sales boomed in June, topping Wall Street's expectations, mostly because of

General Motors'

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discount largess. Meanwhile, inflation remained in check.

The government said retail sales rose 1.7% in June, while economists were expecting an increase of only 0.9%. Excluding auto sales, retail sales were up 0.7% for the month. That number also provided some upside surprise, as economists were looking for an increase of 0.5%.

Meanwhile, the decline in retail sales recorded in May was revised lower to 0.3%, an improvement over the previously reported drop of 0.5% for that month.

Sales of autos and auto parts in June jumped 4.8%, the largest increase for that category since May 2004. This surge came as U.S. automakers have stepped up discounts to clear out their bloated inventories. Most notably, GM offered all its customers a discount usually reserved for its employees, and its June sales soared 41%.

Feeling the heat as GM announced it would extend the program into July,


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followed suit with their own employee-style discounts. While this bodes well for July sales, observers wonder if a price war is developing that could ultimately hurt Detroit's Big Three in the face of foreign competition.

Elsewhere in retailing, gains were recorded across almost all categories. Department stores, warehouses and other general merchandise retailers saw a 1.2% jump in sales after a 0.1% gain a month earlier.

Gasoline station sales rose 1.9% in June after a 0.5% decline in May, while clothing sales climbed 1% after a 0.9% slip the previous month.

Health and personal-care store sales fell 0.2%, while miscellaneous merchandise stores' sales dipped 0.5%.

Separately in economic news, consumer inflation stayed in check again in June, according to a report from the Labor Department. Its consumer price index was unchanged in June after having posted a 0.1% decline in May.

The news fueled optimism on Wall Street, where economists expected an increase of 0.3% for June. The core measure of the CPI, which excludes food and energy prices, rose a mild 0.1%, also coming in below expectations for a 0.2% increase.

The lack of inflation in recent months is widely attributed to a temporary drop in oil prices, which have since climbed back up to record levels above $60 a barrel.