Wholesale prices fell 0.5% in December, much more than expected

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

The producer price index, which measures final demand prices across hundreds of categories, fell 0.5% for the month, the Labor Department reported Wednesday. Economists surveyed by Dow Jones had been looking for a decline of 0.1 percent.

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

A sharp fall in energy prices helped bring overall inflation down for the month. PPI’s final energy demand index plunged 7.9% in the month. Within that category, wholesale petrol prices fell 13.4%.

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

Inflation readings going forward may be less certain, however, as the cost of a gallon of gas is up approx. 21 cents from this time last month, and crude oil prices are up approx. 1.6% so far in January.

Nevertheless, the general trend in inflation has been 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 that consumers pay on the market, while the 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 figures are not adjusted for inflation, so the latest reading reflects both falling inflation and tepid consumer demand during the holiday shopping season.

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