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US Retail Sales, Wholesale Prices Slip

FILE: People shop,on Manhattan's West Side in New York City, New York. Taken March 15, 2019.

WASHINGTON - US retail sales and wholesale prices slipped in February, according to government data released Wednesday, providing some respite for policymakers as the central bank prepares for a crucial interest rate decision next week.

Retail sales contracted in February by 0.4 percent to $698 billion, down from a revised $701 billion a month earlier, the Commerce Department said on Wednesday.

This was driven by declines in sales at department stores, which dropped by four percent, and at furniture and home furnishing stores.

Consumers also cut back on purchases at auto dealers, as well as in restaurants and bars.

"Retail sales took a step back in February, but not enough to signal a major deterioration in consumers' willingness to spend," said Oren Klachkin of Oxford Economics.

"We expect consumer spending to weaken later this year as income gains soften, excess savings run dry, borrowing costs rise, and inflation stays elevated," he added.

Meanwhile, Producer prices in the United States also fell 0.1 percent last month according to separate Labor Department figures, as costs for eggs, gas and diesel fuel slipped.

In particular, there was a 36.1 percent drop in prices for eggs, while indexes for residential natural gas, fresh and dry vegetables, as well as diesel fuel, dropped as well,

"Producer prices are off their peaks but inflation is still elevated," said Rubeela Farooqi, chief US economist at High Frequency Economics.

In further indication of weakness in the manufacturing sector as the impact of Fed rate hikes ripples through the economy, business activity in New York State slumped last month as well.

The New York Fed's Empire State Manufacturing survey saw a plunge in readings, with activity contracting in March and little improvement expected.

The latest numbers follow the release of consumer inflation figures, which showed a day earlier that price increases continued to ease.

But inflation indicators remain well above the Fed's long-term two percent target.

Analysts expect the Fed could push ahead with a 25 basis point rate hike in March, despite recent financial market stress and bank failures.

"We don't think recent events pose systemic risks to the banking sector, and the government has taken steps to stem risks of a panic," said Oxford's Klachkin.

"A pause in the hiking cycle would be premature as inflation continues to run hot and GDP growth remains resilient," he added.