WASHINGTON -- Favorable retail sales and producer price reports for September, released yesterday, reinforced analysts' expectations of stronger economic growth in the second half of the year with stable inflation.

"Yesterday's reports confirmed my view of modest growth with modest inflation," said Edward Campbell, chief economist of Brown Brothers Harriman & Co. "It's more of the same thing we've been seeing over the last several months."

Campbell's comments came as the Commerce Department reported that total retail sales in September increased 0.1% -- the smallest gain since March and much less than the 0.5% increase that had been forecast. It was the sixth straight monthly advance, however, and sales, excluding autos, gained a healthy 0.6%, which was in line with expectations.

Economists generally viewed the retail sales report as positive despite a 1.8% decline in auto sales, which they said was probably temporary. "Basically, it was a pretty good report," Campbell said.

Also yesterday, the Labor Department reported that the producer price index increased 0.2% in September, and the core rate, excluding food and energy prices, was unchanged. This was the first gain in the overall PPI in five months. Analysts on average had expected a 0.2% gain in both price measures.

The food component of the index rose 0.7%, the largest gain in five months, and accounted for much of the gain in the overall index, the department said. Tobacco prices also rebounded slightly after a large decline in August.

Compared with a year ago, both the PPI and the core index are up 0.5%, the department said. An official said this is the best year-over-year performance for the PPI since January 1992, and the best showing for the core index on record. The core PPI, excluding food and energy, has been calculated since 1974.

"Anyway you cut this, it's good news," said Dan Seto, an economist with Nikko Securities Co. International.

The Labor Department will release the September consumer price report this morning. Prior to release of the producer price report, economists on average had forecast a 0.2% gain in both the consumer price index and the core CPI.

Economists cautioned, however, against using a producer price report to help predict the same month's consumer price report. Besides the lag between changes in wholesale and retail prices, they said, the PPI and CPI measure prices of different baskets of goods.

"More than ever, the CPI has divorced itself from the PPI," said Jeffrey Given, an economist with Genetski & Associates, Inc. in Chicago.

Seto predicted that inflation will end the year at about a 3.0% annual rate on the consumer level and under 1.0% on the producer level -- a forecast that is in line with other economists.

In general, economists say inflation will remain stable despite a notable increase in growth. In real terms, the economy grew by a scant 1.4% in the first half of the year. Analysts expect that rate to nearly double in the second half

Campbell forecast growth of around 3.0% in the second half of the year. Consumer spending, which accounts for roughly two-thirds of gross domestic product, has been gaining consistently. Campbell said he expects the trend to continue despite sluggish job growth.

Seto is slightly more pessimistic and predicts real growth of around 2.5% in the remaining two quarters of the year. "It's a tricky time," he said. Consumer spending could easily fall short of expectations, or businesses may be unwilling to replenish their inventories even after a surge in spending, Seto said.

Nonetheless, most analysts said they expect auto sales to rebound and remain strong through the rest of the year. The 1.8% decline in auto sales in September more than offset a 1. 5% gain in August, the Commerce Department reported. But auto sales are up an impressive 11.4% from a year ago, the department said.

"There's no cause for concern regarding auto sales," Given said.

Nondurable goods accounted for most of September's gain in retail sales, according to the Commerce Department. Among other things, sales advanced 1.0% at department stores; 2.1% at clothing stores; and 1.9% at furniture stores, the department said.

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