Wholesale prices posted an unexpected decline in February, providing some encouraging news on inflation as the Federal Reserve weighs its next move on interest rates.

The producer price index fell 0.1% for the month, against the Dow Jones estimate for a 0.3% increase and compared with a 0.3% gain in January, the Labor Department reported Wednesday. On a 12-month basis, the index increased 4.6%, well below the downwardly revised 5.7% level from the previous month.

Excluding food, energy and trade, the index rose 0.2%, down from the 0.5% gain in January. On an annual basis, that reading was up 4.4%, the same as in January. Excluding food and energy, PPI was flat, vs. the estimate for a 0.4% gain.

A 0.2% drop in goods prices helped fuel the headline decrease, representing a sharp pullback from the 1.2% surge in January. Final demand foods tumbled 2.2%, while energy declined 0.2%.

Most of the drop in goods stemmed from a 36.1% plunge in chicken egg prices, which had soared over the past year.

In a separate important data point Wednesday, the Commerce Department reported that retail sales fell 0.4% in February, according to data that is not adjusted for inflation. The total was in line with expectations and dragged down by a 1.8% slide in auto sales.

Food services and drinking establishments, which had seen strong receipts over the past year, fell 2.2% for the month, though they were still up 15.3% on an annual basis. Furniture and home furnishing stores were off 2.5%, while miscellaneous retailers saw a 1.8% decline.

Also, the Empire State Manufacturing survey for March, a gauge of activity in the New York region, posted a -24.6 reading, down 19 points from a month ago. The reading represents the percentage difference between companies reporting expansion versus contraction. The Dow Jones estimate was for a -7.8 level.

The big drop came from precipitous decreases in new orders and shipments as well as inventories. Hiring edged lower as did the prices index.

The news comes a day after the Labor Department said consumer prices rose another 0.4% in February, bringing the annual inflation rate to 6%.

Though that’s well above the 2% level the Fed considers ideal, the 12-month CPI rate was the lowest since September 2021.

Despite the downward drift in the annual inflation rate, and recent banking industry turmoil, financial markets still expect the Federal Reserve to increase interest rates when it meets next week.

Market pricing is pointing to a 0.25 percentage point hike in the federal funds rate, taking the benchmark borrowing level to a target range of 4.75%-5%.

However, futures contracts Wednesday morning also implied a peak, or terminal, rate of about 4.77%, indicating that the March increase would be the last before the Fed pivots away from a tightening regime that began a year ago.