US consumer prices and retail sales rise A mixed batch of data for August reflected the uneven nature of the US recovery and provided some support to the Federal Reserve's decision to further stimulate the world's largest economy. US consumer inflation rose by the most in three years in August and retail sales increased by the most in six months as petrol prices surged. Meanwhile industrial production shrank by the most since March 2009 and business inventories rose in a reaction to weaker demand, reigniting fears of a slowdown in the country's vital manufacturing sector. The headline consumer price index rose 0.6 per cent last month after holding steady in July, the labour department said. August's rise was the largest since June 2009 and the first uptick in five months. The data fell in line with analysts" expectations. The cost of living was boosted by a 9 per cent jump in petrol prices, the biggest one-month increase since November 2009. Prices at the pump accounted for about 80 per cent of August's overall rise. The core CPI - which excludes volatile food and energy prices - increased 0.1 per cent for a second month in a row, slightly below consensus forecasts of a 0.2 per cent rise. The data were released a day after the Fed launched a third round of quantitative easing in an effort to spur growth in the world's largest economy. Consumer spending accounts for about 70 per cent of US gross domestic product. In the 12 months to August overall consumer prices climbed 1.7 per cent, below the Fed's 2 per cent target but an acceleration from July's 1.4 per cent rise. Core CPI posted an annual rise of 1.9 per cent in August, down from 2.1 per cent in July. This was the lowest increase since July 2011. Meanwhile, consumers spent more at US retailers in August, but the sales rise was in part due to higher petrol prices, which boosted the value of sales at filling stations. Overall retail sales rose 0.9 per cent, the commerce department said on Friday. This followed a downwardly revised 0.6 per cent advance in July. Analysts surveyed by Bloomberg had expected sales to rise 0.8 per cent last month. Service-station sales surged 5.5 per cent in August, the most since November 2009. Purchases at car dealers increased 1.3 per cent, the most since February, after a 0.1 per cent gain the prior month, also boosting the headline sales figure. Sales excluding automobiles and petrol rose 0.1 per cent in August, less than the 0.9 per cent gain the month before and below expectations of a 0.4 per cent rise. Spending fell 0.1 per cent at clothing stores and 0.3 per cent at general merchandise stores, while purchases at restaurants and furniture outlets increased. Separate figures from the Federal Reserve added to worries over the state of US manufacturing, which had been a bright spot following the recession and makes up 12 per cent of US GDP. Industrial production shrank 1.2 per cent in August, the most since March 2009. The reading, which covers manufacturing, mining, and utilities, fell below expectations of a 0.1 per cent decline and the previous month's downwardly revised 0.5 per cent fall. Manufacturing, which makes up 75 per cent of the total, fell 0.7 per cent. Economic uncertainty in Europe, a slowdown in China and anxieties surrounding US tax and government spending changes are all keeping businesses from placing more orders. Persistently high unemployment and worries about job and salary prospects are also hampering consumer spending. In August, mining output fell 1.8 per cent after a 1 per cent gain in July, partially tied to shutdowns in the oil industry during tropical storm Isaac. Utilities output decreased 3.6 per cent after a 1.3 per cent gain in July. Capacity utilisation, which measures the amount of a plant that is in use, fell to 78.2 per cent - the lowest since November - from 79.2 per cent in July. Industrial production is leading indicator of non-farm payrolls . . . Manufacturing payrolls has been stalwart since payroll employment recovered two years ago. But we may not be able to count on it like we have been based on today's fundamental details and bad news from the Institute for Supply Management," said Jonathan Basile, director of US economic research at Credit Suisse. The recent decline in factory orders corresponded with an increase in inventories held by manufacturers, wholesalers, and retailers. Business inventories data also released on Friday by the commerce department showed a 0.8 per cent increase in July, from a 0.1 per cent gain the month before. Analysts had expected a 0.5 per cent increase. In spite of recent worries over the health of the economy, consumers were more optimistic in recent weeks. The Thomson Reuters/University of Michigan consumer sentiment index rose to 79.2 in September, above August's level of 74.3 and consensus forecasts of 73.5. The survey questions 500 households each month on their financial conditions and attitudes about the economy and is used to assess the strength of consumer spending. "This news comes in stark contrast to the run of disappointing economic data released this morning, but is in line with the recent rise in some of the other measures of consumer confidence," said Amna Asaf, economist at Capital Economics. "With payroll growth lacklustre in August and jobless claims rebounding in the first week of September, we would have expected to see a decline but it appears as though conditions in the labour market might be holding up for now," she added. The report cautioned that the improved optimism surrounding economic and job prospects was probably a temporary bounce after the recent political conventions.