Consumer prices rise 4.1%, fastest pace in 17 years
Workers’ wages failed to keep up with inflation.
WASHINGTON (AP) — Consumer prices rose in 2007 at the fastest pace in 17 years as motorists paid a lot more for gasoline, and grocery shoppers paid higher food bills. However, falling prices for clothing and new cars offset some of those gains.
The Labor Department reported that consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006. Both energy and food prices jumped by the largest amount since 1990.
Prices were also up sharply for health care, housing and education. However, these gains were offset somewhat by falling prices for clothing, new cars and computers.
Workers’ wages failed to keep up with the higher inflation. Average weekly earnings, after adjusting for inflation, dropped by 0.9 percent in 2007, the fourth decline in the past five years. The lagging wage gains are cited as a chief reason many workers have growing anxiety about their economic futures.
Core inflation, which excludes both energy and food, rose 2.4 percent last year, slightly lower than the 2.6 percent increase of 2006. It is the performance of core inflation that the Fed closely monitors.
Analysts said the slight drop in core inflation for 2007 plus various reports showing the economy is in the grips of a serious slowdown will convince the central bank that a key interest rate it controls should be reduced by a bold half-point when Fed officials next meet on Jan. 30-31.
“Price pressures may be a little greater than the Fed would like but with the economy hitting the skids, inflation is not so high to stand in the way of aggressive action,” predicted Joel Naroff, chief economist at Naroff Economic Advisers.
Providing further evidence of a slowing economy, the Fed reported that output at the nation’s factories was flat in December, the worst showing since an outright decline of 0.5 percent in October. Economists said that poor reading confirmed their view that the manufacturing sector has slipped into a recession.