Retail sales ended 2017 on a high note, while price inflation at both the retail and wholesale levels are of so little threat to the economy, some analysts are wondering if they will keep a lid on planned interest rate hikes.

The Commerce Department reported Friday that retail sales in the U.S rose 0.4% in December from the month before, meeting a consensus estimate from analysts, and following an upwardly revised November surge of 0.9%.

Compared to a year earlier, December retail sales were up 5.4%. For all of 2017, retail sales were 4.2% higher than 2016, the biggest annual hike in three years. That compares to a 3.2% rise in 2016 over 2015.

Core sales, those excluding food services, autos, gasoline and building materials, rose 0.3%, as expected – but the prior month’s advance was revised sharply higher to 1.4% from 0.8%. Core sales spiked to an 8.9% annual rate in the fourth quarter, the most in the post-recession period.

“While the increase in spending wasn’t as broadly based as one would like, the show of strength in recent months is a testament to the strong financial tailwinds, relating to wealth, income and credit, pushing on consumer backs,” said Sal Guatieri, senior economist at BMO Financial Group.

The report also showed online sellers and other non-store retailers extended their dominance in December, increased 1.2% after a 4.2% spike in November, at the expense of traditional department stores which reported a 1.1% decline. Also, furniture sales jumped 7.5% in the year, reflecting strength in home sales, Guatieri noted.

“With consumers and businesses showing few signs of letting up their relentless pace and bound to get a fillip from tax cuts in the new year, the Federal Reserve has little choice but to raise [interest rates] in March,” Guatieri said.

However, not everyone agrees with his take on the Fed's interest rate plans.

Retail, Wholesale Prices Remain Tame

A spearate rerport from the Labor Department showed the Consumer Price Index registered just a 0.1% increase in December from November and is up 2.1% in 2017 over 2016. However, a more closely watched number within this gauge of retail inflation recorded its biggest gain in nearly a year.

The so-called "core CPI," which excludes volatile food and energy prices, moved 0.3% higher in December and is up 1.8% over the past year.

As Josh Nye, economist at RBC Economic Research pointed out, the headline rate of 2.1% is exactly where it was a year earlier, while core inflation remains stuck below the Federal Reserve’s 2% objective. This is despite the unemployment rate falling to 4.1%, below most estimates of what the economy can sustain without driving inflation higher.

“There is limited evidence that underlying inflation is actually heating up,” he said. “That continues to be a sticking point for some members of the Federal Open Market Committee who are reluctant to raise interest rates further in the absence of greater inflationary pressure. However, those on the other side who are concerned about upside risks to the inflation outlook now have a bit more ammunition thanks to the tax cuts passed in December.”

Nye said with the economy already running near full capacity, this fiscal boost arguably will need to be offset by tighter monetary policy.

“A pickup in inflation would certainly help make the case, but even if current price trends hold, we think policymakers have to be concerned about falling behind the curve,” he said. “So while core inflation is likely to remain stuck below 2% early this year, we continue to expect the Fed will raise rates again in March.”

Adding to the concern about slow retail price inflation was another report form the Labor Department showing prices at the wholesale level fell for the first time in about a year and a half.

Its Producer Price Index gave up 0.1% in December from November. Despite the month-over-month decline, the PPI posted a 2.6% gain for all of 2017 when compared to 2016 when it registered a 1.7% increase.

"As expected, producer prices cooled at the end of the year, further complicating the landscape for monetary policy as we turn the corner into 2018,” said Lindsey Piegza, chief economist at Stifel Fixed Income. “Despite improvement in the labor market, inflation continues to fall short of the Federal Reserve’s longer-term target, which may prove an insurmountable barrier to the committee's forecast for three [interest] rate hikes over the coming 12 months.”

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