Prices show smaller gains
Wholesale prices moderated in December after a big surge the previous month, while industrial production rebounded from three consecutive declines, according to reports released Wednesday.
The Federal Reserve, meanwhile, reported that the economy was expanding at a modest pace at the beginning of the year in spite of weakness in housing.
Analysts said the reports indicated that the Fed was on track to achieve its goals. The economy keeps growing, but slowly enough that inflation is kept under control without the country falling into a recession.
The Labor Department reported that wholesale prices rose 0.9% in December. That was more than economists expected but less than November’s 2% advance, the biggest in 32 years.
Excluding the volatile food and energy sectors, wholesale prices rose only 0.2% last month. The moderate showing should lend support to the view that inflationary pressures are starting to wane.
Industrial production rose 0.4%, the Fed said, much better than expected. Manufacturing rebounded, with gains at vehicle plants and factories making electronic products, machinery and aircraft.
Production had declined in September, October and November. The increase in December supported forecasts that manufacturers should enjoy a solid 2007. Many analysts expect strength in exports and business investment to offset weakness in housing-related industries.
Also Wednesday, the Fed released its latest survey of business conditions, reporting modest growth so far this year despite a slowdown in housing.
The Fed’s report will aid policymakers when they meet Jan. 30 and 31. Most analysts believe the Fed, which raised rates for two years to combat inflationary pressures, probably will keep rates level through midyear.
“Inflation continues at a moderate pace, which is neither too hot for the Fed to do anything nor cold enough for a rate cut,” said Joel Naroff, chief economist at Naroff Economic Advisors.
For all of 2006, wholesale prices rose just 1.1%, compared with a 5.4% increase in 2005. The slight gain reflected a slowdown in energy costs and was the smallest since prices fell 1.6% in the recession year of 2001.
Gasoline prices reached record levels above $3 a gallon last summer. Since then, energy prices have moderated. For 2006, energy costs fell 2% after soaring 23.9% in 2005.
Core inflation climbed 2% in 2006, up slightly from a 1.7% increase in 2005.
For December, food costs rose 1.7%, the biggest increase since October 2003. Analysts said they probably were headed even higher after winter storms damaged citrus crops.
The 0.4% rise in industrial production reflected a 0.7% advance in factory output and a 0.8% rise in the category that includes oil drilling. That helped offset a 2.6% drop in utility output, the byproduct of an unseasonably mild December.
