US egg prices send a signal to the Federal Reserve

Average prices paid by U.S. businesses for goods and services fell 0.1% from January to February, according to new producer price index data from the US Bureau of Labor Statistics (BLS). The decline was led by the cost of goods down 0.2%, while the price of services fell 0.1%.

Eggs, recent and rather surprising indicator for prices, showed the way. Businesses paid 41.3% less for eggs during the month. However, only a portion of these savings were passed on to consumers; according to separate BLS data consumer price index, consumers pay only 6.7% less for eggs in their grocery stores. Yet, as prices fall, this may lead to fewer egg shortages – and also fewer smuggled eggs across the border between Mexico and the United States. Vegetable prices also fell 13.6% in February, after falling more than 30% in January.

The price of natural gas fell 41.4% month-over-month as the United States emerges from a mild winter. As a result, other energy items, such as industrial electricity, fell by 5%.

U.S. companies also got a break on an assortment of other goods and services, including rents, building equipment and materials, asphalt, agricultural chemicals, airfares, machinery, vehicles and platinum.

The decline in producer prices, in addition to the slowdown in consumer prices, is another good reason for the Federal Reserve to slow down or halt the pace of its interest rate hikes. Consumers won’t immediately see the kinds of discounts companies get, thanks to the long chain of intermediaries between producers and consumers. But the direction of the movement is clear, and eventually producer rebates will trickle down to other Americans.

Also on Wednesday, the U.S. Department of Commerce published data showing that US consumers are slowing their spending, with retail sales falling 0.4% from January to February. The pullback included a 2.2% decline in spending at restaurants and bars, signaling that Americans may try to limit their discretionary spending.

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