Consumer Prices Edge Down
A surge in the cost of gasoline and other energy products pushed consumer prices up by 3.3% in 2004, the biggest jump in four years, but relief may be on the way. Consumer prices actually slipped in December as energy costs moderated.
The Labor Department reported Wednesday that its closely watched consumer price index edged down 0.1% last month, reflecting the biggest drop in energy prices since July.
The 3.3% increase in prices for all of 2004 was the biggest jump since a 3.4% rise in 2000. It represented a significant acceleration from a moderate 1.9% rise in consumer prices in 2003.
Price pressures last year were dominated by a 16.6% surge in fuel bills, the biggest jump in 14 years, as gasoline prices jumped by 26.1%, natural gas was up 16.4% and home heating oil rose by 39.5%.
Those hefty price increases, reflecting turmoil in global oil markets, caused a major slowdown in economic activity in the late spring as consumers, struggling to pay higher energy bills, suddenly stopped spending on other items.
Forecasters, however, believe that overall inflation will moderate significantly this year if crude oil prices, which hit a record $55 per barrel in October, fall back to below $40 per barrel by the end of this year. The news on inflation was one of a number of encouraging reports released Wednesday depicting an economy moving forward at a brisk pace at the end of last year and heading into 2005.
The Labor Department said the number of laid-off workers filing new claims for unemployment benefits totaled 319,000 last week, a drop of 48,000 from the previous week. It was the biggest one-week improvement in more than three years and relieved worries that the job market might be weakening because of two previous weeks of rising jobless claims.
Construction on new homes and apartments, after being depressed by rainy weather in November, soared 10.9% in December, the Commerce Department reported. For the entire year, construction climbed 5.7%, the fourth annual gain in a row, as work was started on 1.95 million homes and apartments.
David Seiders, chief economist for the National Assn. of Home Builders, predicted construction would decline slightly to around 1.88 million housing starts this year, which he said would “still be an excellent year for housing.”
In another report, the Federal Reserve released its latest snapshot of business activity around the country showing that 11 of its 12 regional banks reported the economy continued to expand through early January with shoppers and tourists keeping stores busy.
Only the Cleveland district, which covers the hard-hit Rust Belt manufacturing industries, was not upbeat, reporting “mixed” activity during the period.
The Fed report, which will be used when policymakers meet to set interest rates Feb. 1-2, found no areas of worrisome inflation, saying that “wage pressures generally remained modest,” confirming the CPI findings.
Outside of the volatile energy and food sectors, the so-called core rate of inflation posted a small 0.2% increase in December and for the whole year was up 2.2%.
