Wholesale costs fell 0.5% in December, far more than anticipated; Retail gross sales are falling

Prices of wholesale goods and services fell sharply in December, another sign that inflation, while still high, is beginning to ease.

The producer price index, which measures final demand prices in hundreds of categories, fell 0.5% for the month, the Labor Department reported on Wednesday. Economists polled by Dow Jones had expected a 0.1% decline. The drop was the largest on a monthly basis since April 2020.

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

For the year, overall PPI rose 6.2%, the lowest annual level since March 2021 and well below the 10% annual increase in 2021.

A sharp drop in energy prices helped push headline inflation for the month lower. The PPI Final Demand Energy Index plunged 7.9% over the month. Within this category, wholesale gasoline prices fell 13.4%.

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

However, future inflation data may be less certain as the cost of a gallon of gasoline has risen about 21 cents since this time last month and crude oil prices are up about 1.6% so far in January.

Nevertheless, the general inflation trend was somewhat lower. The consumer price index fell 0.1% in December but was still up 6.5% year-on-year — 5.7% excluding food and energy. CPI measures the prices consumers pay in the marketplace, while PPI measures what businesses pay for goods and services.

The falling prices were reflected in another economic report released on Wednesday.

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

Ex-autos retail sales also fell 1.1%, below estimates for a 0.5% decline.

The steep decline in sales suggests “consumption growth will slow significantly in the first quarter,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Gas sales also played a major role here, with sales at service stations falling by 4.6%. Department stores also reported a 6.6% decline, part of a broader 0.8% loss at convenience stores.

Most categories posted losses, with online sales down 1.1%, furniture & home furnishings down 2.5% and car & parts dealers down 1.2%.

On a yearly basis, retail sales were still up 6%. However, that was 0.5 percentage points below the headline CPI inflation figure.

The lower inflation numbers are expected to impact Federal Reserve policy. Markets expect the central bank to hike interest rates by 0.25 percentage point in February, further slowing the rapid pace in 2022. The Fed raised interest rates four times in a row last year by 0.75 percentage points before moving 0.5 percentage points approved in December.

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