Consumer prices up 0.3% in Dec

WASHINGTON: Consumer prices in the US rose at a slower pace in December, signalling inflation may decelerate after rising in 2007 by the most in 17 years. The cost of living increased 0.3% after a 0.8% gain in November, the Labour Department said on Wednesday. Prices excluding food and energy rose 0.2%, after climbing 0.3% a month earlier. Slower economic growth will make it more difficult for companies to pass on higher costs to consumers, suggesting inflation will continue to cool, economists said. For all of last year, consumer prices rose 4.1%, the mos since 1990.

The core rate increased 2.4% after a 2.6% increase in 2006. Energy prices last month rose 0.9%, after rising 5.7% the previous month. Fuel costs were up 18% in 2007, also the most in 17 years. Food prices, which account for about a fifth of the CPI, increased 0.1%., the smallest increase of any month in 2007.

The consumer price index is the government’s broadest gauge of costs for goods and services. Almost 60% of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

The government on Tuesday said producer prices unexpectedly eased 0.1% at the end of a year that saw the biggest annual jump in more than a quarter century. The cost of imported goods was unchanged in December, a report last week showed.

PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month. Rents, which make up almost 40% of the core CPI, rose 0.3%.

Slower economic growth may help damp price pressures, economists said. The economy will expand at an average 1.5% pace in the first half of this year, the same as forecast for the fourth quarter, according to the estimate in a survey taken earlier this month.

Fed chairman Ben S Bernanke and several of his colleagues last week said they are growing more concerned about growth. Bernanke pledged “substantive additional action” to ensure against “downside risks” to the economic expansion.

Philadelphia Fed Bank president Charles Plosser, who economists consider the toughest on inflation, told PBS television on January 11 that he’ll “certainly” consider additional interest-rate cuts after consumer spending slowed more than he expected. Traders anticipate the Fed will lower its benchmark rate by at least a half point this month, to 3.75%, and odds of bigger reductions have climbed.

Some merchants are already cutting prices to try to lure buyers. Williams-Sonoma, the US gourmet-cookware retailer, on Tuesday reduced its fourth-quarter profit forecast following an unexpected decline in holiday sales. The San Francisco-based company said it marked down merchandise and offered cheaper shipping at its Pottery Barn. This year may be “increasingly challenging,” CEO Howard Lester said in the statement.

Those manufacturers facing less price-sensitive demand are trying to pass rising costs to consumers. General Mills, the second-largest US cereal maker, this week said it expects to raise prices later this year to recovering higher dairy and wheat costs. The Minneapolis-based company raised prices on such products as Yoplait yogurt and Pillsbury refrigerated dough on November 1 following increases earlier in the year