Consumer prices post big ‘07 jump

U.S. shoppers faced moderate price rises in December, but that capped a year in which prices soared at the sharpest rate in 17 years, pressuring households also dealing with a steep housing downturn and tighter credit.

The Labor Department said Wednesday that its consumer price index rose 0.3% in December, less than half November’s 0.8% jump. But for all of last year, the key measure of inflation rose 4.1%, well ahead of the previous year’s 2.5% gain and the steepest since 1990.

Also Wednesday, the Federal Reserve said output by the nation’s mines, factories and utilities was flat in December and in 2007 posted its weakest gain since 2003.

The data, combined with a report Tuesday showing a drop in December retail sales, underline “our view that we’re on the razor’s edge here, that we could be headed into recession,” said Mike Schenk, senior economist at Credit Union National Assn. in Madison, Wis.

A Reuters poll of 20 Wall Street primary dealers – big firms that deal with the Fed directly – found that all expected the U.S. central bank to cut interest rates by half a percentage point when it meets Jan. 29 and 30.

The White House and Congress also are discussing a fiscal stimulus plan.

The Fed’s latest “beige book,” an anecdotal summary of conditions across the country, found that the economy was still growing in the final weeks of 2007 but at a weaker pace and with signs of rising stress among consumers.

“Most reports on retail activity indicated subdued holiday spending and further weakness in auto sales,” the Fed said, and housing activity was soft from coast to coast.

The consumer price index is the most widely watched gauge of inflation. The so-called core CPI, which strips out volatile food and energy items, was up 0.2% in December after a 0.3% November increase. Some analysts said that was a reassuring sign that price pressures might be easing.