WASHINGTON, D.C.: U.S. consumers stepped up spending sharply in August, pushing retail sales up 1.2 percent, while a separate surge in import prices added to signs of persistent inflation ahead of the Federal Reserve's interest rate decision on September 16.

The increase in retail sales was the largest since March and followed a revised 0.5 percent decline in July, the Commerce Department's Census Bureau said. Economists had forecast a 0.8 percent rebound after sales were previously reported to have fallen 0.6 percent in July.

Sales, which are mostly goods and are not adjusted for inflation, rose 6.0 percent from a year earlier.

The stronger-than-expected figures prompted economists to raise estimates for third-quarter economic growth. Combined with data showing import prices increased sharply in August, economists said the reports reinforced expectations that the Federal Reserve would raise interest rates later Wednesday.

"This reaffirms that the economy is more than capable of handling higher interest rates, providing the Fed plenty of scope to hike to get inflation under control," said Bradley Saunders, North America economist at Capital Economics.

Producer and consumer prices accelerated in August, while the labor market regained its footing after weakening through much of the summer.

Higher gasoline prices contributed to the rise in retail sales, lifting service station receipts by 3.1 percent. Households have continued spending despite high inflation stemming from the oil price shock and supply chain strains caused by the U.S.-Israeli war with Iran.

Consumers have become more selective and are looking for lower-priced goods. Spending has been supported by steady wage growth and recent stock market gains, while households are also saving less and drawing on their savings.

Economists said the pace of August's retail sales growth was unsustainable as gasoline prices rise sharply this month and inflation-adjusted wages decline. Lower-income households are struggling with higher energy and food prices, while consumer sentiment deteriorated this month.

"More consumers are losing their purchasing power," said Scott Anderson, chief U.S. economist at BMO Capital Markets. "We expect this to be an increasing drag on real consumer spending growth in the fourth quarter and into 2027. Healthy retail sales reports like this one are more dependent than ever on continued household wealth gains."

Sales at nonstore retailers climbed 2.6 percent, while clothing store receipts increased 0.7 percent. Vehicle and parts dealer sales rose 0.6 percent, furniture store receipts gained 0.9 percent, and electronics and appliance store sales jumped 1.6 percent. Sporting goods, hobby, musical instrument and book retailers recorded a 1.2 percent increase.

Building material and garden equipment sales fell 0.2 percent. Spending at food services and drinking places, the report's only services category and a key measure of household finances, increased 1.2 percent after rising 0.5 percent in July.

Retail sales excluding automobiles, gasoline, building materials and food services surged 1.4 percent, their largest increase since September 2024, following an unrevised 0.4 percent decline in July. Economists had expected these core retail sales, which correspond most closely with the consumer spending component of gross domestic product, to rise 0.4 percent.

Goldman Sachs economists raised their estimate for annualized third-quarter GDP growth by half a percentage point to 3.0 percent. JPMorgan economists increased their estimate to 3.5 percent from 2.75 percent. The economy expanded at a 1.5 percent annualized rate in the previous quarter.

A separate Census Bureau report showed business inventories increased 0.8 percent in July, further supporting growth prospects for the third quarter.

Financial markets expected the Fed to raise its benchmark overnight interest rate by 25 basis points to a range of 3.75 percent to 4.00 percent Wednesday. Wall Street stocks were mostly higher, the dollar strengthened against a basket of currencies, and U.S. Treasury yields slipped.

Separately, the Labor Department's Bureau of Labor Statistics said import prices rebounded 0.7 percent in August after declining 0.3 percent in each of the previous two months. Economists had expected a 0.4 percent increase. Import prices exclude tariffs.

Import prices surged 7.0 percent in the 12 months through August, the biggest increase since August 2022, after rising 6.1 percent in July, suggesting inflation could increase further in coming months.

Imported capital goods prices rose 0.9 percent in August after increasing 1.0 percent in July, driven by higher prices for computers, peripherals and semiconductors, industrial and service machinery and telecommunications equipment. Prices for imported computers, peripherals and semiconductors were up 19.1 percent from a year earlier. The artificial intelligence buildout is driving up prices for imported capital goods.

Imported consumer goods prices excluding automobiles rebounded 0.5 percent, while prices of imported vehicles, parts and engines were unchanged.

Imported fuel prices declined 0.1 percent for a third consecutive month, while imported food prices edged up 0.1 percent. The moderation is likely temporary as crude oil prices have risen above US$100 a barrel.

Excluding food and fuel, import prices jumped 0.8 percent after increasing 0.3 percent in July. Core imported inflation rose 5.6 percent in the 12 months through August.

"Progress on inflation simply isn't good enough," said Oren Klachkin, financial market economist at Nationwide. "After today, we're looking for another 25 basis points hike before year-end ... additional tightening is possible."