We all cheered when inflation fell last week, and today gives us more reasons to celebrate: Wholesale inflation as tracked by the Producer Price Index (PPI) fell by 0.5% in December, a bigger drop than the 0.1% decline economists had expected. Since companies tend to pass on rising prices to consumers, wholesale inflation dropping is good news for us shoppers: We could eventually see lower prices in the stores.
Even though inflation is easing, stubbornly high prices and rising interest rates have caused shoppers to pull back on spending. Retail sales fell 1.1% in December from the month prior, roughly in line with the 1% drop economists forecasted.
Consumer spending had been going strong throughout the pandemic, and is one of the reasons inflation has remained so persistently high. But with higher rates hitting wallets and recession fears rising, shoppers are choosing to spend less, which will ultimately help slow down the economy.
Shoppers steered clear of department stores and gas stations as spending plummeted in those categories last month. Restaurant sales were flat from the month before, while shopping in grocery stores ticked up slightly by 0.1%.
Retail sales are important to the U.S. economy because 70% of our gross domestic product (GDP) is built on consumer spending. But the hot economy has been a problem for the Federal Reserve, which has been trying to cool it down through a series of rate hikes designed to fight inflation. While the data shows that the ship is turning in the right direction, investors still have worries that we might tip into a recession.
Stocks are flat to lower today as investors also digest earnings reports and other corporate news.
- Kristin
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