AP News, January 18th, 2007
The Labor Department releases the December Consumer Price Index at 8:30 a.m. today. The consensus among economists is for a rise of 0.4 percent. Also due this morning are government numbers on housing starts and jobless claims and the Conference Board report on Leading Economic Indicators.
Wholesale prices moderated in December after a big surge the previous month, while industrial production rebounded from three consecutive declines.
The Federal Reserve, meanwhile, reported that the economy was expanding at a modest pace at the beginning of the year in spite of a weakness in housing.
Analysts said the reports released Wednesday indicated the Fed is on track to achieve its goal: The economy keeps growing, but slowly enough so inflation is kept under control without pushing the country into a recession.
The Labor Department reported that wholesale prices rose by 0.9 percent in December. That was more than economists expected, but not as much as the 2 percent gain in November, the biggest in 32 years.
Excluding volatile food and energy, wholesale prices rose only by 0.2 percent last month. The moderate showing should lend support to the view that inflationary pressures are starting to wane.
Industrial production rose by 0.4 percent, which proved much better than expected. Manufacturing rebounded, with gains at auto plants and factories making computers, 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. The belief is that strength in exports and business investment will offset weakness in housing-related industries such as lumber and furniture.
Also Wednesday, the Fed released its latest survey of business conditions, reporting a modest pace in economic growth at the beginning of the year despite a severe slowdown in housing.
The Fed's report will aid policymakers when they meet on Jan. 30-31. Most analysts believe the Fed, which increased rates for two years to combat inflationary pressures, will keep rates unchanged probably through mid-2007.
"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.
On Wall Street, the Dow Jones industrial average fell 5.44 points, to 12,577.15, after record closing levels for three consecutive sessions.
For all of 2006, wholesale prices rose by just 1.1 percent, compared with a 5.4 percent increase in 2005. The slight gain reflected a moderation in energy costs.
Gasoline prices reached record levels above $3 per gallon last summer. Since then, energy price increases have slowed, helping cap the rise in inflation last year. For 2006, energy costs fell by 2 percent after having soared by 23.9 percent in 2005.
The 0.4 percent rise in industrial production reflected a 0.7 percent advance in output at factories and a 0.8 percent rise in the category that includes oil drilling. That helped to offset a 2.6 percent drop in utility output, the byproduct of an unseasonably mild December.
The overall wholesale price increase of 1.1 percent in 2006 was the smallest since prices fell by 1.6 percent in the recession year of 2001.
While there had been fears the central bank had overdone the credit-tightening, recent upbeat reports indicate the economy will achieve the hoped-for soft landing.
For December, energy costs rose 2.5 percent after a jump of 6.1 percent in November. But with global oil prices falling to 19-month lows, analysts believe further declines in energy are on the way.
Wholesale gasoline prices rose by 7.1 percent; home heating oil costs were up 4 percent and natural gas intended for home use was 0.7 percent higher.
Food costs rose by 1.7 percent in December, the biggest increase since October 2003. Analysts said food costs probably are headed even higher because of damage to citrus crops from the recent winter storms.
Excluding volatile food and energy, the core rate of inflation edged up just 0.2 percent in December, far below the 1.3 percent November surge caused by a huge jump in the cost of new cars and trucks.
In December, new car prices fell by 0.2 percent while light truck prices rose by 0.7 percent.
Core inflation showed an increase of 2 percent for all of 2006, up slightly from a 1.4 percent increase for all of 2005.
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On the Net:
Wholesale inflation: http://www.bls.gov/ppi
Industrial production and regional outlook: http://www.federalreserve.gov
