Wholesale Inflation, Retail Sales Climb in Dec

WASHINGTON – Soaring gasoline costs pushed inflation at the wholesale level up sharply in December, ending a year in which wholesale inflation rose at the fastest pace since 1990.

The Labor Department reported that its Producer Price Index, which measures price pressures before they reach the consumer, rose 0.9 percent in December, the biggest increase since a 1.7 percent jump in September. The culprit in both months was a big surge in gasoline costs, which spiked above $3 per gallon in early September, reflecting lost Gulf Coast production following Hurricane Katrina.

For all of 2005, wholesale prices rose by 5.4 percent. That was the biggest increase since a 5.7 percent increase in 1990, and another year in which surging oil costs pushed inflation higher. However, core inflation, excluding energy and food, was up a more moderate 1.7 percent in 2005, including a tiny 0.1 percent increase in December.

In other economic news, retail sales posted a 0.7 percent increase in December after rising by 0.8 percent in November.

However, excluding autos, consumer spending at retail stores was up a much more modest 0.2 percent following a decline of 0.4 percent in November. Those figures were viewed as depicting a rather lackluster Christmas sales season.

The 0.9 percent increase in wholesale prices in December followed a 0.7 percent plunge in prices in November. Economists had been expecting a rebound last month but the increase was more than double the 0.4 percent rise in the PPI they had been predicting.

The increase was expected to keep the Federal Reserve on a path of gradually moving interest rates higher to make sure that energy price pressures do not spill over into more broadbased inflation problems.

Analysts believe the Fed will boost a key interest rate for a 14th time when officials next meet on Jan. 31, which will be Alan Greenspan's last meeting as chairman. Another quarter-point hike is expected in March at the first meeting where Ben Bernanke will preside as chairman.

Economists believe economic growth slowed sharply in the final three months of 2005, reflecting a big dropoff in the growth of consumer spending, which accounts for two-thirds of total economic activity. Many analysts believe the overall economy grew at a rate of 3 percent or less in the fourth quarter, down from a 4.1 percent growth rate in the July-September period.

The 0.7 percent increase for retail sales in December was below the 1 percent increase that many economists were expecting. Auto sales were up 2.6 percent after an even stronger 5.7 percent increase in November, finishing a year in which sales in this category surged in the summer because of attractive discounts, but then slumped in the early fall.

The weak 0.2 percent rise in sales excluding autos was led by a 0.9 percent increase in sales at gas stations, an increase that was influenced by rising pump prices. Excluding autos and gasoline, sales rose a tiny 0.1 percent in December.

Demand was flat at specialty clothing stores and fell by 0.3 percent at department stores and other general merchandise stores.

Energy costs were up 3.1 percent in December, with the gain led by a 12.3 percent rise in gasoline prices, the biggest one-month jump since a 12.7 percent increase in September.

Residential natural gas prices actually fell by 2.7 percent last month although analysts are warning that consumers are going to be hit by considerably higher home heating bills this winter, reflecting higher costs than a year ago for natural gas and home heating oil.

Food costs rose by 0.9 percent in December, the biggest increase since a 1.4 percent jump in September. Vegetable prices were up 21.7 percent, reflecting higher costs for cauliflower, lettuce, eggplant, broccoli and tomatoes. Beef prices were up 2.4 percent but the price of processed chickens fell by 4 percent.

Outside of food and energy, the 0.1 percent increase in the core inflation rate reflected a decline of 1 percent in light truck prices and a 0.2 percent fall in the price of new cars. The price of communication equipment was up 0.6 percent, the biggest rise since March 2003, while pharmacy products rose by 0.6 percent.

The 5.4 percent increase for wholesales prices for all of 2005 followed a 4.1 percent 2004 increase. Both gains were the biggest since a 5.7 percent rise in 1990, a year when Iraq's invasion of Kuwait sent global energy prices soaring.