Inflation rises, industrialization flat
Could reports trigger new slide on Wall Street?
WASHINGTON (AP) - January 16, 2008 Consumer prices rose by 4.1 percent for all of 2007, up sharply
from a 2.5 percent increase in 2006, the Labor Department said
Wednesday. Consumers felt the pain when they filled up their gas
tanks or shopped for groceries. Prices for both energy and food
shot up by the largest amount since 1990.
In a second report, the Federal Reserve said that output at the
nation's factories, mines and utilities showed no growth in
December, adding to a string of weak economic reports showing that
the economy was slowing at the end of last year.
That weakness has shown up in the biggest one-month jump in
unemployment since the 2001 terrorist attacks and billions of
dollars in losses at many of the country's biggest financial
institutions. Citigroup Inc. reported Tuesday it had suffered a $10
billion loss for the last three months of 2007, reflecting bad bets
on investments backed by subprime mortgages.
The Dow Jones industrial average plunged by 277 points on
Tuesday and fell even further on Wednesday as Intel reported weak
earnings for the fourth quarter. The Dow was down by 26 points in
late morning trading.
The unchanged industrial output in December was the poorest
showing since industrial output actually fell by 0.5 percent in
October. Output had been up by 0.3 percent in November.
The December weakness reflected flat output at U.S. factories, a
tiny 0.1 percent rise in the mining industry and a 0.2 percent drop
at the nation's utilities.
The Consumer Price Index rose by 0.3 percent in December, slower
than the 0.8 percent in November, as food costs were flat for the
month and energy prices rose by 0.9 percent after an even bigger
5.7 percent jump in November.
Outside of food and energy, inflation rose a more moderate 0.2
percent in December. This measure of core inflation rose by 2.4
percent for all of 2007, down slightly from a 2.6 percent increase
in 2006.
The Federal Reserve is closely watching to see whether the jump
in food and energy becomes more widespread and starts pushing core
inflation higher.
Analysts said that with core prices generally remaining
well-behaved, it will give the central bank the leeway to cut
interest rates further to battle a serious economic slowdown
triggered by a steep slump in housing and a spreading credit
crisis.
The expectation is that the Fed will cut a key rate by a
half-point when officials meet at the end of this month. Federal
Reserve Chairman Ben Bernanke raised hopes for further rate cuts in
a speech last week when he said that economic risks had grown
significantly in recent weeks.
The rising risk of a recession has prompted politicians to
consider stimulus packages to give the economy a jump-start to
either prevent a recession or at least mitigate its fallout.
President Bush has said he may unveil a plan around his Jan. 28
State of the Union address. Democrats in Congress and presidential
candidates in both parties are putting forward their own plans.
The CPI report showed that the 4.1 percent increase in overall
prices was the biggest since a 6.1 percent jump in prices in 1990.
Energy costs rose by 17.4 percent this past year while food
costs rose by 4.9 percent. Both were the biggest increases since
1990. Gasoline prices were up 29.6 percent, the biggest increase
since they soared by 30.1 percent in 1999.
The 2.4 percent rise in prices outside of food and energy was
the smallest since a 2.2 percent rise in 2005.
Clothing costs and the price of new cars actually fell for the
year, both dropping by 0.3 percent, while airline fares, reflecting
higher fuel costs, were up 10.6 percent and medical care, always
one of the leading areas of price increases, rose by 5.2 percent
for 2007.
Workers' wages failed to keep up with the higher inflation.
Average weekly earnings, after adjusting for inflation, dropped by
0.9 percent in 2007, the biggest setback since a 1.5 percent fall
in 2005.