U.S. consumer prices held steady in June and retail sales jumped, according to government reports on Thursday that showed the economy on solid ground with little evidence of inflationary pressure.

Tumbling energy prices offset small gains in the cost of food and other items, keeping the Labor Department's (search) consumer price index steady in defiance of Wall Street forecasts for a 0.3 percent gain.

So-called core inflation, which strips out volatile food and energy costs, edged up a mild 0.1 percent for the second straight month, suggesting underlying inflationary pressures may be waning.

A separate report from the Commerce Department showed retail sales jumped an unexpectedly large 1.7 percent last month as shoppers took advantage of automaker discounts. Outside of autos, spending increased 0.7 percent, a touch higher than forecasts.

Analysts cautioned that some of the spending strength may not hold, but said the economy looked good right now.

"You have the perfect economic picture here -- strong spending with low inflation," said Elisabeth Denison, an economist with Dresdner Kleinwort Wasserstein in New York.

Denison and many other economists said, however, the Federal Reserve (search) would likely continue to push interest rates up at a gradual pace in an effort to try to ensure a continued non-inflationary economic performance.

The Fed has raised rates nine times in a row, taking overnight borrowing costs to 3.25 percent from 1 percent just over a year ago. Some analysts believe policy-makers may soon pause in their tightening campaign.

The unchanged reading in the overall CPI, which followed the first drop in 10 months in May, slowed the year-on-year increase in consumer prices to just 2.5 percent, well off the peak of 3.5 percent hit just two months ago. It was the lowest 12-month CPI reading since last September, before a big spike in oil prices.

Over the past 12 months, core inflation advanced 2 percent, the smallest year-on-year gain since October.

Energy prices fell for a second straight month, dropping 0.5 percent in June as the cost of gasoline plunged 1.2 percent plunge and natural gas prices slid 3.5 percent. Food prices edged up 0.1 percent.