Wholesale prices fell 0.5% in December, much more than expected

Prices for wholesale goods and services fell sharply in December, another sign that inflation, although still high, is beginning to subside.

The producer price index, which measures final demand prices in hundreds of categories, fell 0.5% for the month, the Labor Department reported Wednesday. Economists polled by Dow Jones expected a decline of 0.1%.

Excluding food and energy, the core PPI measure rose 0.1%, in line with the estimate.

For the year, the overall PPI rose 6.2%, the lowest annual level since March 2021 and a considerable decline from the 10% annual increase in 2021.

A sharp decline in energy prices helped lower headline inflation for the month. The PPI index for final energy demand plunged 7.9% over the month. In this category, wholesale gasoline prices fell 13.4%.

The final food demand index also fell, falling by 1.2%.

Upcoming inflation readings may be less certain, however, as the cost of a gallon of gasoline has risen about 21 cents from the same period last month, and crude oil prices have risen by around 1.6% so far in January.

Nevertheless, the general inflation trend was slightly lower. The consumer price index fell 0.1% in December, although it was still up 6.5% from a year ago – 5.7% excluding food and energy. The CPI measures the prices consumers pay in the market, while the PPI measures what businesses pay for goods and services.

The drop in prices was reflected in another economic report released on Wednesday.

Retail sales fell 1.1% in December, slightly more than the forecast 1%. These numbers are not adjusted for inflation, so the latest reading reflects both lower inflation and weaker consumer demand during the holiday shopping season.

Excluding cars, retail sales also fell 1.1%, below the estimate of a 0.5% decline.

Again, gasoline sales played a big role, with gas station sales dropping 4.6%. Department stores also posted a 6.6% decline, part of a broader 0.8% loss at general merchandise stores.

Most categories posted losses, with online sales down 1.1%, furniture and fixtures down 2.5% and motor vehicle and parts dealers down 1.0%. .2%.

Year over year, retail sales still increased by 6%. That, however, was 0.5 percentage points below the headline CPI inflation figure.

Lower inflation should have an impact on Federal Reserve policy. Markets expect the central bank to raise its benchmark borrowing rate by 0.25 percentage points in February, representing a further deceleration from what had been a torrid pace in 2022. The Fed raised the rate by 0.75 percentage points four times in a row last year before approving a rate of 0.5 percentage points. moving in December.


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