Inflation rise to quarter century high
WASHINGTON (AP) - January 15, 2008 The Labor Department reported that wholesale inflation was up
6.3 percent for all of 2007, reflecting a huge increase for the
year in various types of energy costs ranging from gasoline to home
heating oil.
Meanwhile, retail sales fell by 0.4 percent in December, the
worst showing in six months, the Commerce Department reported.
Consumer confidence has plunged, reflecting the worsening housing
slump and a lingering credit crisis.
In a third report, the government said that inventories held by
businesses rose by 0.4 percent in November, reflecting big
increases in stockpiles held by manufacturers and wholesalers. The
0.4 percent rise matched a similar increase in September and was in
line with expectations. Inventories had risen by a much smaller 0.1
percent in October.
The poor showing for retail sales and a disappointing quarterly
report from Citigroup Inc. renewed recession worries on Wall
Street. In early morning trading, the Dow Jones industrial average
was down more than 100 points.
"Consumers held tight to their wallets in December, raising
questions about whether household spending will be enough to keep
us out of a recession," said Joel Naroff, chief economist at
Naroff Economic Advisors.
For inflation, the year ended on a more positive note with
wholesale prices falling by 0.1 percent in December. That reflected
decreasing costs last month for gasoline and other energy products.
It was a significant slowdown after prices had soared by 3.2
percent in November, which had been the biggest one-month increase
in 34 years.
The combination of rising inflation pressures and a weak economy
represent a dilemma for the Federal Reserve over whether to cut
rates to boost economic growth even at the risk of making inflation
worse.
Federal Reserve Chairman Ben Bernanke last week sent a strong
signal that the Fed is more worried at the moment about weak growth
than inflation - given a series of weaker-than-expected data in
recent weeks. He is certain to quizzed on those comments when he
testifies Thursday before the House Budget Committee.
The economy skidded to a virtual standstill in the final three
months of last year, raising fears the country could fall into a
recession, unable to withstand the multiple blows from the
prolonged downturn in housing, a severe credit crisis and soaring
energy costs.
Already, unemployment is rising. The jobless rate jumped to 5
percent in December, up from 4.7 percent in November. That was the
biggest one-month surge in unemployment since October 2001 in the
wake of the 2001 terrorist attacks.
The various economic threats have sent consumer confidence
plunging and pushed the economy to the top of voters' concerns.
Political leaders have responded, with President Bush, Democrats in
Congress and presidential candidates from both parties putting
forward economic stimulus proposals.
The 6.3 percent increase in the Producer Price Index, which
measures cost pressures before they reach the consumer, followed a
much more moderate 1.1 percent increase in 2006.
It was the biggest annual price gain since a 6.3 percent rise in
1981, a year when the Federal Reserve was aggressively raising
interest rates in a successful effort to combat a decade-long bout
of stagflation, rising inflation in conjunction with weak economic
growth.
The big increase last year reflected the fact that energy prices
rose by 18.4 percent after having declined by 2 percent in 2006. It
was the biggest annual increase in energy costs at the wholesale
level since they rose by 23.9 percent in 2005.
However, core inflation, which excludes energy and food, was
considerably more moderate, rising by 2 percent last year, the same
as in 2006. The Fed is closely watching core prices for any signs
that the price pressures being seen in energy and food are starting
to spread to other parts of the economy.
For December, the 0.1 percent drop in overall prices reflected a
1.9 percent plunge in energy and a 1.3 percent rise in food costs.
Outside of food and energy, core inflation posted a moderate 0.2
percent increase.