Wholesale costs are down 0.1%, retail gross sales are falling

A customer views merchandise at a store in Miami, Florida, on March 14, 2023.

Joe Raedle | Getty Images

Wholesale prices fell unexpectedly in February, providing some encouraging news on inflation as the Federal Reserve weighs its next rate move.

The producer price index fell 0.1% for the month, versus the Dow Jones estimate for a 0.3% rise and compared with a 0.3% rise in January, the Labor Department reported on Wednesday. On a 12-month basis, the index rose 4.6%, well below the previous month’s revised down level of 5.7%.

Excluding food, energy and trade, the index rose 0.2% compared to January’s 0.5% gain. On an annual basis, this figure increased by 4.4%, the same as in January. Ex-Food & Energy, the PPI was flat versus the estimate for a 0.4% gain.

A 0.2% decline in commodity prices helped fuel the overall decline, a sharp fall from January’s 1.2% gain. Final demand for food fell 2.2%, while energy fell 0.2%.

Most of the drop in goods was due to a 36.1% drop in hen egg prices, which had skyrocketed over the past year.

In a separate key data point on Wednesday, the Commerce Department reported that retail sales fell 0.4% in February, according to non-inflation-adjusted data. The total was in line with expectations, dragged down by a 1.8% decline in auto sales.

Food & Beverage businesses, which had posted strong revenues last year, fell 2.2% for the month, although they were still up 15.3% on a yearly basis. Furniture and home furnishings stores lost 2.5%, while miscellaneous retailers posted a 1.8% drop.

Also, the Empire State Manufacturing survey for March, a measure of activity in the New York region, returned -24.6, down 19 points from the previous month. The metric represents the percentage difference between companies reporting expansion versus contraction. The Dow Jones estimate was -7.8.

The big decline came from steep declines in new orders and shipments, and inventories. New hires fell, as did the price index.

The news comes a day after the Labor Department said consumer prices rose a further 0.4% in February, bringing the annual inflation rate to 6%.

Although this is well above the 2% level the Fed deemed ideal, the 12-month CPI rate was the lowest since September 2021.

Despite the downward trend in annual inflation and the recent turmoil in the banking sector, financial markets are still expecting the US Federal Reserve to hike rates when it meets next week.

Market prices are pointing to a 0.25 percentage point hike in the Federal Funds Rate, bringing benchmark lending levels to a target range of 4.75% to 5%.

However, Wednesday morning futures contracts also implied a peak or terminal rate of around 4.77%, suggesting the March hike would be the last before the Fed pivots away from a tightening regime that began a year ago.

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