INSTANT VIEW: PPI soars, retail sales weak

NEW YORK (Reuters) - Producer prices rose a far larger-than-expected 1.8 percent in June as energy costs soared, but core inflation at the producer level edged up just 0.2 percent, Labor Department data showed on Tuesday.

The Labor Department said producer prices over the last 12 months were up 9.2 percent, the biggest increase since a 10.4 percent gain in June 1981.

Core producer prices, which strip out volatile energy and food costs, increased by 0.2 percent, the same margin as in May. Economists had expected core prices to rise 0.3 percent in June. On a year-over-year basis, core prices were up 3.0 percent.

Total sales at U.S. retailers rose a less-than-expected 0.1 percent in June, as auto sales had their biggest drop in more than two years, a Commerce Department showed on Tuesday.

Auto and auto parts sales fell 3.3 percent in June, their worst month since February 2006. They tumbled 9.5 percent from a year earlier.

Excluding autos, retail sales rose 0.8 in June, which was also below the pre-report consensus estimate of 1.0 percent. Excluding autos, building supplies and gasoline, retail sales rose 0.4 percent in June.

Meanwhile, manufacturing in New York State contracted in July for the third consecutive month, though the rate of decline was less severe than in June, the New York Federal Reserve reported.

The New York Fed's "Empire State" general business conditions index came in at minus 4.92 in July from minus 8.68 in June, while its gauges of inflation also posted increases.

COMMENTS:

DANA SAPORTA, ECONOMIST, DRESDNER KLEINWORT SECURITIES LLC,

NEW YORK:

PPI: "The year-over-year rise in the headline is the biggest since 1981. It clearly points to higher inflation pressure. It puts Bernanke in an uncomfortable position before the Congress today."

"The Fed is stuck with the financial turmoil but there is no way it could raise rates even with the disappointing PPI headline number. The Fed has choice but to keep fed funds rate on hold for now."

RETAIL SALES: "There's a large drop in auto sales, which was offset by a big price increase at the gasoline pump."

"In general, things would be a lot weaker if its not for the rebate checks. Our real concerns is in the facing the falling housing and labor markets consumers may slow abruptly in Q4."

OMER ESINER, SENIOR MARKET ANALYST, RUESCH INTERNATIONAL,