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.

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%.

Future inflation numbers 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.

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