U.S. business inventories rose in June to their highest level in a year while sales fell, the Commerce Department said Friday.

The report was the latest of several important economic indicators released Friday to show that American consumer demand — which is 70 per cent of the world's biggest economy — remains tepid.

July's increase in U.S. retail sales followed two consecutive months of declines in retail sales. (Associated Press)

Inventories climbed 0.3 per cent to $1.36 trillion US, the highest since May 2009. That followed a 0.2 per cent gain in May and exceeded Wall Street forecasts for a similar 0.2 per cent rise.

Some economists worry waning demand might leave some firms with more goods than they can sell, and the report showed business sales falling 0.6 per cent, to $1.08 trillion.

That was its lowest reading since February.

The Commerce Department also reported Friday that U.S. retail sales posted a modest gain in July after consecutive declines in the two previous months.

The rise came mostly from higher sales of autos and gasoline, while most other retailers saw their sales fall.

Sales rose 0.4 per cent, and when autos were stripped out, climbed only 0.2 per cent.

Alistair Bentley, an economist with TD Economics, said the report showed that consumer spending is gradually improving and the recovery is continuing.

"Despite some recent sluggishness," he wrote in a commentary, "retail sales have still grown by 7.3 per cent since reaching a trough in December 2008 — although they still remain 4.5 per cent below their pre-recession peak."

Some better news came from the University of Michigan/Reuters survey of consumer sentiment for the first part of August. An index based on the survey came in at 69.6, slightly above analysts' estimates and up from July's 67.8

Prices rise

And the U.S. Labour Department reported that consumer prices rose in July by the most since last August as energy costs increased for the first time in five months.

The increase is likely to ease concerns, raised in recent weeks by some Federal Reserve officials, that the weak economy could tip into deflation. Deflation is a widespread and prolonged drop in the price of goods, real estate and stocks. It also reduces wages and makes it harder to pay off debts.

The consumer price index, the government's most closely watched inflation measure, increased by 0.3 per cent in July, after three months of declines. Wall Street economists had expected a smaller increase.

Over the past year, consumer prices rose by 1.2 per cent, the department said. That's up slightly from last month's 1.1 per cent pace but still a mild increase.

With files from The Associated Press