Sharp Jump In Wholesale Inflation

GENERIC Holiday stock market shopping economy
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 weaker-than-expected 0.7 percent increase in December, the Commerce Department reported, after rising by 0.8 percent in November.

Excluding autos, consumer spending at retail stores was up an even more modest 0.2 percent following a decline of 0.4 percent in November.

Those figures were seen as further evidence that retailers had a fairly lackluster Christmas sales season. But analysts expressed the hope that January sales will rebound as consumers spend the gift cards they got for Christmas. Those cards are not counted as a retail sale until they are redeemed.

"Retailers continue to report good sales momentum in the post-holiday period, bolstered by gift card redemptions," said Michelle Girard, an economist at RBS Greenwich Capital.

In a third report, the Commerce Department said that inventories held by businesses on shelves and backlots rose by 0.5 percent in November, slightly better than the 0.4 percent incease that Wall Street was expecting. Economists believe that a rebound in depleted business inventories in the closing months of 2005 will help support overall economic growth as the growth in consumer spending cools off.