Wholesale prices up most since '90
From Wire Reports
Originally published January 14, 2006
WASHINGTON // Soaring energy prices pushed wholesale inflation up in 2005 by the highest amount in 15 years, the Labor Department reported yesterday, as another report showed that retail sales rose by a moderate 0.7 percent in December with almost all of the strength coming from higher car sales.
"The reports underscore the importance to the consumer of this huge rise in energy prices," said Christopher Low, chief economist at FTN Financial in New York. Energy prices "have taken a big bite out of people's spending power."
Wholesale prices rose by a bigger-than-expected 0.9 percent last month, closing out a year in which they climbed 5.4 percent, the biggest advance since a 5.7 percent jump in 1990.
However, core inflation, which excludes energy and food, was much better behaved, rising by a tiny 0.1 percent in December and just 1.7 percent for the year, even better than the 2.3 percent increase in core prices in 2004.
Energy prices shot up 3.1 percent as gasoline prices skyrocketed by 12.3 percent last month. That was close to the 12.7 percent surge in September, when widespread production shutdowns at Gulf Coast refineries led to gasoline rising briefly above $3 a gallon.
While the tame core inflation number showed surging energy has not translated into higher overall prices, analysts said it will keep the Federal Reserve on guard and will likely translate into two more quarter-point rate increases at the Fed's Jan. 31 and March 28 meetings.
"This alerts us to the fact that we still have to deal with the issue of a possible spillover of high energy prices into core inflation," said Lyle Gramley, a former Fed governor. "It hasn't happened yet, but there is a potential problem."
Analysts said that the weaker-than-expected increase in retail sales last month provided evidence that the economy is slowing, which should help dampen inflation. Many economists believe overall growth in the final three months of 2005 slowed to a rate of 3 percent or less, compared with 4.1 percent growth in the third quarter of last year, as debt-burdened consumers cut back on spending.
The 0.7 percent rise in retail sales in December followed a 0.8 percent November increase, but both months were heavily influenced by auto sales.
Excluding autos, December sales rose by just 0.2 percent. November sales fell by 0.4 percent when autos were not counted.
Sales were down by 0.3 percent at department and other general merchandise stores in December, and were flat at specialty clothing stores. Electronics stores' sales dropped 0.1 percent.
