U.S. retail sales rose in July in a hopeful sign for the economy, but the gains were concentrated in auto and gasoline station sales, suggesting underlying momentum in consumer spending remains tame.

CONSUMER PRICE INDEX: Higher energy costs helped lift U.S. consumer prices in July, the first rise in four months, according to a government report on Friday that could ease concerns about deflation.

KEY POINTS: * Sales climbed 0.4 percent last month following a revised 0.3 percent drop in June, the Commerce Department said on Friday. Economists polled by Reuters had been looking for a slightly firmer 0.5 percent gain. * Excluding vehicles, sales advanced just 0.2 percent compared with a median forecast of 0.3 percent. When autos and gasoline were stripped out, sales actually fell 0.1 percent. * The Labor Department said its seasonally adjusted Consumer Price Index rose 0.3 percent last month, after falling 0.1 percent in June. Analysts polled by Reuters had forecast consumer prices to rise 0.2 percent. * In the 12 months to July, the consumer price index rose 1.2 percent, in line with market expectations, after rising 1.1 percent in June, the report showed.

COMMENTS:

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF TOKYO/MITSUBISHI UFJ, NEW YORK:

Retail sales reflect the soft patch we're in. Headline retail sales rose for the first time in two months, but we're well off the pace from February and March.

There's certainly been a chill in the air for consumers for the last four months. It shouldn't stay slow forever. Another month of tepid sales is not upsetting the apple cart when it comes to the stock market.

We're really depending on the expectations of businesses and consumers. If the stock market stabilizes here we may see more spending in August and September. But July retail sales definitely centered on autos and gas stations.

There are no elements of deflation in the consumer price report. It's not too hot, not too cold. No deflation story there and certainly no sign of any inflationary pressures. The core CPI is 0.9 percent year-over-year.

ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:

Retail sales were a little bit disappointing. It confirms the softening trend that we've seen in the reports in the last few months. Consumers remain cautions likely due to the weak labor market.

The softness was relatively broad based, the consumer is pulling back in a number of fronts. There's no sign of a consumer collapse, but also no sign of a more robust recovery.

On the CPI front, there's been a lot of talk about deflation but no sign of that is emerging in the data yet. Relatively subdued inflation trends and no sign of further deterioration in prices.

For the stock market these data should be a bit of a disappointment, particularly the retail sales figures. Just another sign of a soft growth path.

STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, DANVILLE, CALIFORNIA:

Headline consumer inflation rebounded in July after falling in both May and June. Consumer prices are now only 1.2 percent above their year-ago level. With energy prices 5.2 percent above their year-ago level, core consumer prices are only 0.9 percent above their year-ago level. Headline consumer inflation has been even weaker in more recent months although core consumer inflation has been a bit stronger. Soft final demands with ample slack in the economy and financial deleveraging are disinflationary so core consumer inflation may continue to retreat on a year-on-year basis over the next several quarters.

FRANK LESH, FUTURES ANALYST AND BROKER, FUTUREPATH TRADING LLC,
CHICAGO:

We're pretty steady (in stock futures), so I think we're OK with retail sales, at least it wasn't down. It's certainly not a bad number; it wasn't something that made you say 'OMG sell!,' but it didn't prompt me to buy either.

CPI was a little hotter than expected, but I don't really think inflation is our concern at moment, so I think any reaction today in the (stock) market was more centered on retail sales.

PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:

The retail sales report was the big thing. The headline number was a little softer than expected, but the details were even softer. You were hard pressed to find any category of merchandise that showed an increase. This is too stagnant to inspire confidence that consumer spending will not be a drag on growth. The third quarter starts on a weak footing.

The consumer price number was a generally stable performance which gives mild comfort that the economy is not dropping precipitously into deflation, but only mild. You're seeing very, very low inflation in service prices, some of which is due to housing, but more and more of which has to do with the effect of recession on labor costs.

VASSILI SEREBRIAKOV, CURRENCY STRATEGIST, WELLS FARGO BANK, NEW YORK:

The data is not great. It may not help the dollar much but is probably not going to hurt the dollar either. Consumer recovery remains tepid and today's retail sales numbers are consistent with that picture. The same applies for CPI, with a report that was largely in line with expectations. To sum up, we won't see much reaction in the currency markets to these reports.

MIKE MCGERVEY, PRESIDENT, MCGERVEY WEALTH MANAGEMENT, NORTH CANTON, OHIO:

Short term, I think the CPI increase will improve investor sentiment and will be good for equity markets. With regard to consumer spending we have continued to see that soften as a function of unemployment. I also think we are starting to see increased U.S. savings rates.

STUART HOFFMAN, CHIEF ECONOMIST, PNC FINANCIAL SERVICES GROUP,
PITTSBURGH, PENNSYLVANIA:

This is all very much in line. The good news is that if the markets are fighting a battle of deflation, news that there is a little bit of inflation even without food and energy, I would argue in some ways that is good news that we got a little bit of inflation. It is not a sign we are deflating.

On retail sales it was right on the money. We knew the strength would be partly in autos and gasoline sales from higher prices. When you strip those out core sales were down a tenth, and that is soft, but ex-autos was up two tenths I guess it is pretty much the same story -- consumers are still cautious. But it is not double-dip material.

MARKET REACTION: STOCKS: U.S. stock index futures slipped further BONDS: U.S. Treasury debt prices added to gains DOLLAR: U.S. dollar edged higher against the euro