U.S. December retail sales rose slightly less than expected, but retail sales for all of 2010 reversed two years of contraction and posted the biggest gain in more than a decade.

December retail sales climbed 0.6 percent, advancing for the sixth straight month as sales declines at electronics and general merchandise stores were offset by gains in gasoline and building materials sales, the U.S. Commerce Department said. Analysts polled by Reuters were expecting sales to gain 0.8 percent. Excluding autos, sales rose 0.5 percent. Analysts had forecast a 0.7 percent increase.

Total sales for the 12 months of 2010 were up 6.65 percent from the previous year after a 6.5 percent drop in 2009. It was the largest 12-month gain in sales since 1999.

Sharply higher gasoline prices pushed overall U.S. December consumer prices up at their fastest pace in a year and a half, though core prices, which strip out volatile food and energy costs, barely budged.

Overall consumer prices rose a slightly more-than-expected 0.5 percent in December, the Labor Department report said, but excluding volatile food and energy costs, retail prices rose just 0.1 percent, in line with expectations.

Overall consumer prices rose 1.5 percent from the same month a year ago, while core consumer prices gained 0.8 percent in 2010, the slowest calendar year pace since the department started keeping records in 1958.

ANALYSTS COMMENTS:

KURT KARL, CHIEF ECONOMIST, SWISS RE, NEW YORK:

RETAIL SALES:

Things are going pretty well on the consumer side, and it's not just discounts everywhere. The three-month moving average through December is really strong and not just motor vehicles. There is also some interest in building materials so people want to fix up their homes.

Despite the volatility in jobs numbers, we are gathering momentum. We are having a hard time keeping up with consumer demand and export demand. I can't see why it would flop on employment at this point. We should see 200,000 a month in payroll increase easily by year-end.

CPI: The core reading is very modest so the question is how long it will stay this low? My general sense is that the core is coming off from its recent bottom. I expect the core will be bouncing between 0.5 and 1.0 percent on a year-to-year basis.

RUDY NARVAS, SENIOR ECONOMIST, SOCIETE GENERALE, NEW YORK:

The headline retail sales number was weaker than expected, but if you look at the control number, ex-autos and gas, it was better than expected. It also seems as well, if you look at the breakdown of the retail sales numbers, it looks like the winter at the end of December had some impact because general merchandise trade and department store sales were a little bit lower than we had expected. But underlying it was still pretty good, even though the headline was a bit disappointing it is not going to shave too much off our view that Q4 growth is going to be fairly firm at 4.8 percent.

You are seeing core CPI stabilizing and still rising, albeit at a moderate pace. You are still close to zero, but I think from a policy makers perspective the trend in place is more on the positive side, given that U.S. growth is going to be a little bit firmer in 2011 and 2012 than had been previously expected.

JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT, NEW YORK:

It (retail sales) was a little less than expected. So the initial reaction is it gives a little bit of credence to those who think the consensus has gotten somewhat optimistic and that some of the growth we've seen has been Washington-policy induced. When you combine retail sales with recent payrolls numbers, maybe those forecasting 4 percent real growth are a touch optimistic. This combined with higher-than-expected headline inflation, which saps money from consumers and hurts profit margins, is likely to have a little bit of a reality check on a (stock) market that may have gotten a touch too exuberant.

DAVID RESLER, CHIEF ECONOMIST, NOMURA SECURITIES, NEW YORK:

We didn't see either reports as particularly surprising. On the CPI it underscores the divergence between what we're seeing in the commodity markets, particularly food and energy, in recent weeks and now months.

We can't deny that food and energy are part of the consumption bundle, and if those price increases that we've seen recently stick and prices stay at those levels, prices will remain higher. But that doesn't mean the rate of increase is going to accelerate.

From here on we think we're going to see smaller month-over-month increases in those items and maybe even some payback for moving ahead too rapidly.

We don't see right now inflation to be a major threat to the economy. In fact, if food and energy prices hold at these present levels, we wouldn't be surprises to see some downward pressure elsewhere in the CPI index because demand is not so strong as to allows businesses across the board to raise price.

MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BNY MELLON:

There's enough data coming out today that you can cherry-pick what you want to read. We had large expectations going into these numbers. Certainly retail sales is a modest disappointment. CPI is a bit hotter than expected but on a core CPI basis, it's still very low. For the annualized core figure, 0.8 percent is far away from where the Fed would like to see it. In currencies, I think it's mostly a technical move we're seeing today. We've a three-day weekend coming up, and financials are allocated capital for the year, which is helping the higher-yiedlers.

MARKET REACTION: STOCKS: U.S. stock index futures add to losses after data BONDS: U.S. Treasury bond prices pare losses after retail sales FOREX: Euro edges up vs dollar after U.S. retail sales data

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