Inflation, Retail Sales Fall as Rate Hikes Slow Economy

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What's Happening Today

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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Term of the Day

Dividend

Dividends are distributions of profits on investments. They are paid out of corporate earnings directly to shareholders, who then have an opportunity to reinvest them. Typically, dividends are taxable to the shareholder who receives them unless they are in a tax-advantaged account such as a Roth IRA.

When a company's board of directors declares a dividend, it will also declare an ex-dividend date and a dividend-payable date. The day before the "ex-date" is when anyone who owns shares will receive the next dividend, based on their total holdings. If you buy the stock the day after the ex-date, you won't get the upcoming dividend payment; you'll have to wait for any future ones. The payable date is the date on which the dividend is actually sent to the owners.

Off the Charts

Grocery prices have surged over the past year as part of a broader inflation trend that has bloated costs for consumer items since spring 2021. Egg prices, however, have more than doubled over the last year for another reason separate from broader economic trends. An outbreak of bird flu has decimated poultry flocks, and the ensuing egg shortage drove the price of a dozen grade-A eggs to $4.25 in December, more than double the $1.79 average in December 2021, data from the Bureau of Labor Statistics shows.