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January 15, 2008
Wholesale Prices Rise 6.3 Percent in '07
By THE ASSOCIATED PRESS
Filed at 9:09 a.m. ET
WASHINGTON (AP) -- Wholesale inflation last year shot up by the largest
amount in 26 years while retailers suffered their worst December shopping
season in five years as mounting economic woes caused consumers to put away
their wallets.
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.
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.
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 better behaved,
rising by 2 percent last year, the same as in 2006. The Fed is closley
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.
Wholesale Prices Rise 6.3 Percent in '07
By THE ASSOCIATED PRESS
Filed at 9:09 a.m. ET
WASHINGTON (AP) -- Wholesale inflation last year shot up by the largest
amount in 26 years while retailers suffered their worst December shopping
season in five years as mounting economic woes caused consumers to put away
their wallets.
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.
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.
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 better behaved,
rising by 2 percent last year, the same as in 2006. The Fed is closley
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.
