U.S. September retail sales rose 0.8% month over month, above expectations; gas stations contributed about 70% of the increase.

Data released by the U.S. Department of Commerce on Thursday showed that U.S. retail sales in September were $745 billion, up 0.8% month over month, above the market expectation of 0.3%, and up 6.3% year over year. The Department of Commerce also revised the August month-over-month increase up to 1.3% from 1.1%. Excluding auto and gasoline sales, September retail sales rose 0.2% month over month. The increase was highly concentrated in energy and dining. By category, of the roughly $5.7 billion month-over-month increase in September, gas stations contributed about $4.1 billion, or about 71%; food services contributed about $1 billion, or about 18%, with the two together accounting for about 90% of the increase. Gas station sales in September rose 6.4% month over month and 28.1% year over year. Retail sales excluding autos and parts and gas stations rose only 0.2% month over month and 5.0% year over year, indicating that aside from price-driven energy spending, the momentum in other consumer spending was relatively moderate. Among the categories, autos and parts rose 0.2% month over month and 2.6% year over year; nonstore retailers (including online shopping) rose 0.3% month over month and 8.2% year over year; food services rose 1.1% month over month and 7.0% year over year. Retail sales are nominal and do not exclude price changes, so the boost to nominal sales from higher energy prices does not equate to real consumption growth. Inflation and consumption data were both stronger in tandem. September CPI released the previous day rose 3.7% year over year, while core CPI rose 2.6%, both above market expectations; September PPI released the same day rose 6.3% year over year, also above the expected 5.3%. According to the CME "FedWatch" tool, the probability that the Federal Reserve keeps rates unchanged in October is 66.8%, while the probability of a 25-basis-point hike is 33.2%, up from 22.1% the previous day; the probability of at least a cumulative 25-basis-point hike by December is close to 90%. On September 16, the Federal Reserve had already raised the policy rate by 25 basis points to 3.75%-4.00%.