Wholesale Inflation Moderates in December

Wholesale prices, which had surged upward at the fastest place in more than three decades in November, moderated last month. That capped a year in which prices rose at the slowest pace in five years.

The Labor Department reported Wednesday that its Producer Price Index, which measures cost pressures before they reach the consumer, rose by 0.9 percent in December, down sharply from a 2 percent jump in November which had been the biggest one-month increase since November 1974.

For the whole year, wholesale prices were up just 1.1 percent, down sharply from the 5.4 percent surge in 2005, reflecting a slowdown in the surge in energy costs.

Gasoline prices surged to record levels above $3 per gallon last summer, but energy prices have since moderated a bit and that helped to cap the rise in inflation in 2006. For 2006, energy costs were down by 2 percent after having soared by 23.9 percent in 2005.

The overall wholesale price increase of 1.1 percent in 2006 was the smallest advance since prices actually fell by 1.6 percent in the recession year of 2001.

The Federal Reserve pushed interest rates up at 17 consecutive meetings over two years in an effort to slow economic growth enough to restrain inflation pressures.

While there had been fears that the central bank had overdone the credit-tightening, recent upbeat economic reports indicate the economy will achieve the hoped-for soft landing rather than a more severe outcome such as a recession.