Wholesale Prices Edge Up In December

The Labor Department reported that wholesale prices edged up 0.2% last month, much slower than the 1.8% surge in November. And energy prices, which had been up for two months, fell in December, the Associated Press reports.

The price performance at the wholesale level combined with recent benign reading on consumer prices supported the view that inflation is not a problem. That gives the Federal Reserve room to keep interest rates low to help boost the country out of a deep recession, according to analysts.

Meanwhile, the Commerce Department reported that construction of new homes and apartments fell 4% in December to a seasonally adjusted annual rate of 557,000 units as bad weather hit much of the country.

The 0.2% overall increase in wholesale prices was slightly higher than the flat reading economists had expected while the unchanged reading on core prices was lower than the 0.1% advance analysts had forecast.

Energy costs fell by 0.4% in December as the price of gasoline dropped by 3.2%, the biggest one-month decline since September. Natural gas prices fell by 1.9%, the biggest decline since last May.

Food costs rose by 1.4%, the third straight month of higher food costs. The December jump was led by a 9.4% rise in pork prices, the biggest increase in a decade, and a 3.7% increase in the cost of dairy products, the largest advance in more than two years.

The rise in food costs accounted for one-fifth of December’s overall 0.2% rise in wholesale inflation.

For the 12 months ending in December, prices at the wholesale level were up 4.4% compared to a 0.9% drop in wholesale prices in 2008. That big swing reflected a rise in energy costs in 2009.

The low inflation has allowed Federal Reserve officials to push a key interest rate to its lowest level on record. The Fed’s target for banks’ overnight lending rate has been at 0% to 0.25% for more than a year now.