US retail sales fell for a third straight month in February as households cut back on purchases of motor vehicles and other big-ticket items, prompting analysts to downgrade their first-quarter economic growth forecasts.
Despite signs of cooling in consumer spending, inflation pressures are steadily building, which should allow the Federal Reserve to raise interest rates next week.
The Fed has forecast three interest rate increases this year. Many economists expect the US central bank will raise its projection to four rate increases because of a robust labour market and firming inflation.
Other data on Wednesday showed underlying producer prices rose solidly in February, driven by strong gains in the cost of services such as hotel accommodation, airline fares and hospital inpatient care.
The sustained decline in retail sales is surprising as consumer confidence is at a more than 17-year high in the wake of a $15 trillion income tax cut package and a labour market that continues to churn out jobs.
Economists said consumers boosted spending in the fourth quarter in anticipation of the lower taxes.
The Commerce Department said retail sales slipped 0.1 per cent last month.
Economists polled by Reuters had forecast retail sales rising 0.3 per cent in February. Retail sales in February increased 4.0 per cent from a year ago.
As a result of the weak core retail sales at the start of the year, economists lowered their first-quarter GDP growth estimates. The Atlanta Fed slashed its forecast to a 1.9 per cent annualised rate from a 2.5 per cent pace.
In a separate report, the Labor Department said a key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.4 per cent last month, matching January's gain.
The increase in underlying wholesale prices supports views that consumer inflation will pick up this year.