Wholesale prices fell by 0.1%, retail sales fell

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

Joe Radle | Getty Images

Wholesale prices posted an unexpected decline in February, providing some encouraging news on inflation as the Federal Reserve weighs its next move on interest rates.

The producer price index fell 0.1% for the month, compared with a 0.3% rise in the Dow Jones estimate and a 0.3% gain in January, the Labor Department said on Wednesday. On a 12-month basis, the index rose 4.6%, well below the downwardly revised 5.7% last month.

Excluding food, energy and trade, the index rose 0.2% from January’s 0.5% gain. On an annual basis, this indicator increased by 4.4%, as in January. Excluding food and energy, PPI was flat compared to a 0.4% increase.

A 0.2% drop in commodity prices led the headline decline, marking a sharp reversal from January’s 1.2% gain. Final demand for food products fell by 2.2%, and energy fell by 0.2%.

Most of the drop in commodities was due to a 36.1% drop in egg prices last year.

In a separate key data point on Wednesday, the Commerce Department reported that retail sales fell 0.4% in February, unadjusted for inflation. All were in line with expectations, and car sales fell 1.8%.

Foodservice and beverage establishments, which saw strong revenue last year, fell 2.2% in the month, but they still grew 15.3% on a year-over-year basis. Furniture and home furnishings stores fell 2.5%, while miscellaneous retailers fell 1.8%.

Also, the March Empire State Manufacturing survey, a measure of activity in the New York area, posted a reading of -24.6, down 19 points from a month earlier. The ratio represents the percentage difference between companies reporting expansions and contractions. The Dow Jones estimate was -7.8.

The big drop came from new orders and shipments, as well as a sharp drop in inventory. Rents have fallen, as has the price index.

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

While that was well above the 2% level the Fed considers ideal, the 12-month CPI rate was the lowest since September 2021.

Despite the lower annual inflation rate and recent turmoil in the banking industry, financial markets still expect the Federal Reserve to raise interest rates when it meets next week.

Market prices point to a 0.25 percentage point increase in the federal funds rate, which would bring the benchmark borrowing rate to a target range of 4.75%-5%.

However, futures contracts on Wednesday morning also indicated a peak or terminal rate of around 4.77%, indicating that the March hike will be the last before the Fed abandons its tightening regime that began a year ago.

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