Jan 18, 2023 - Economy

New data suggests inflation is on the retreat

Data: FRED; Chart: Axios Visuals

The latest slate of U.S. economic data tells a story about the economy that’s sure to please monetary policymakers: more signs of fading inflation, with consumers dialing back on spending.

Why it matters: The data is the latest to suggest the Fed may have cover to pull back on interest rate increases, with inflation pressures appearing to dissipate.

Driving the news: The Producer Price Index, which measures wholesale prices, fell 0.5% in December, a much bigger drop than the 0.1% decline economists anticipated.

  • The index is up 6.2% in the 12 months through December, down from 7.3% in the year ending in November.
  • The "core" index that excludes food, energy and trade services was also more benign than expected, rising by 0.1%.

Meanwhile, retail sales also declined by 1.1% in December, a sign that consumer spending eased, even during the busy holiday shopping season.

  • Spending increased in just a few categories, including sporting, groceries and building material stores. Retail sales figures are not adjusted for inflation.

The bottom line: The Fed says its war on inflation is far from over. But, for policymakers at least, the economic data points to a welcomed slowing in demand.

Go deeper