Rise in US consumer prices largest in 17 years

WASHINGTON – UNITED States consumer prices rose 0.3 per cent last month and for all of 2007 they shot up at the fastest rate in 17 years, largely because of soaring energy costs, the US Labour Department reported yesterday.

The Consumer Price Index (CPI), the most broadly used gauge of inflation, rose 4.1 per cent last year, well ahead of the 2.5 per cent increase posted in 2006 and the largest 12-month rise since a 6.1 per cent increase in 1990.

December’s CPI monthly rise followed a sharp 0.8 per cent jump in November and was modestly ahead of Wall Street economists’ forecasts for a 0.2 per cent gain.

Analysts said it underlined the pressure consumer budgets were under but also left room for the Federal Reserve to cut interest rates again at the end of this month to help prop up the economy.

‘What this means for monetary policy, it seems, is that there is some room in there for the Fed to go ahead and cut rates without fear that inflation is going to rear up,’ said Mr Oscar Gonzalez, an economist at John Hancock in Boston.

US stocks opened lower yesterday after the report was out. After one hour of trading, the Dow Jones Industrial Average was down 50.32 points, or 0.4 per cent, at 12,450.79. The Nasdaq Composite Index was off 26.91 points, or 1.11 per cent, at 2,390.68.

For all of last year, core prices – which strip out volatile food and energy items – were up 2.4 per cent following a 2.6 per cent pickup in 2006. That was the smallest 12-month rise in core prices since a 2.2 per cent increase in 2005.

The department said both food and energy costs rose during the full year at the fastest rates since 1990.

Energy costs in the 12 months were up 17.4 per cent, while food prices gained 4.9 per cent.

 

Source: REUTERS (The Straits Times 17 Jan 08)