Retail sales in the U.S. barely moved higher last month -- about half what many analysts were expecting. With wholesale prices falling the most in eight months. there's more speculation on what will happen with interest rates.

New Commerce Department figures show a 0.1% increase in September from the month before – and the August figure was revised downward, from a 0.2% gain to being virtually unchanged. Market expectations going into the report were for a slightly stronger September increase of 0.2%.

Compared to September 2014, retail sales last month were 2.4% higher, down from 4.4% year-over-year growth this time last year.

Sales of motor vehicles and parts rose 1.7% in September, while sales at gas stations dropped 3.2% thanks to falling gasoline prices,

So called “core sales,” which exclude motor vehicle, gas station and building material store receipts, dropped 0.1%, following downwardly revised gains in August and July of 0.2% and 0.5%, respectively.

Paul Ferley, assistant chief economist at RBC Economics, says next month will be better, pointing out that the decline in core retail sales followed solid gains in earlier months.

“This earlier strength remains sufficient to propel real consumer spending growth in the third quarter close to matching the 3.6% annualized increase recorded in second quarter," he said. "An expected recovery in October retail sales should keep consumer spending growing at an above-average pace.

“Solid, sustained increases in this key expenditure area provide a strong argument for the U.S. Federal Reserve to start to pull back on the currently highly simulative monetary conditions. Our forecast assumes a 25-basis point hike (0.25%) before the end of the year, though such is contingent on an easing in the financial market volatility that was a factor staying the Fed’s hand at the September policy meeting.”

Meanwhile, a separate report from the U.S. Labor Department indicates inflation is not a threat that needs to play into the Fed's decision, at least at the wholesale level.

The Producer Price Index for September fell 0.5% from the month before. Even when volatile food and energy prices are excluded, it still showed a 0.3% drop.

Over the past 12 months the PPI is down 1.1%, marking the eighth consecutive 12-month drop. Energy prices fell 5.9%, accounting for most of the decline, while food prices fell 0.8%.

However, core price are up 0.5%.

According to the latest September Federal Open Market Committee meeting minutes, many committee members are beginning to lose confidence in the Fed’s outlook for inflation to reverse course back to their longer-term objective of 2%, said Lindsey Piegza, chief economist at Stifel Fixed Income.

“Instead, officials warned the need to wait on the sideline for further evidence that inflation was in fact stabilizing and increasing towards the Fed’s 2% target. This morning’s report does nothing to instill said confidence, but rather further bolsters the dovish argument to keep rates lower for longer until price pressures are evident in the economy,” she said. “After all, the committee is right to be concerned that a premature tightening ‘might erode the credibility’ of the committee’s longer-term objective if inflation remained below 2% for a “prolonged period.” The question for the Fed is not when will inflation reverse course back to 2%, but, at this point, what inflation?”

Related -- Economic Watch: Inflation Well Below Fed’s Goal for Interest Rate Hike