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Thu, Feb 08, 2001 EST
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Wholesale Prices Up Sharply For Year Although Moderate in December
By Martin Crutsinger   Associated Press
WASHINGTON — Wholesale prices surged 3.6 percent last year, the biggest increase in a decade, despite a moderation in price pressures in December, the government said Friday.

The Labor Department reported that its producer price index, which measures inflation pressures before they reach the consumer, was unchanged in December despite the fact that natural gas prices soared by a record 6.9 percent last month.

The unchanged figure for wholesale prices overall in December was a better-than-expected showing. Many analysts had been looking for an increase of 0.3 percent because of the steep rise in natural gas prices.

However, gasoline costs and home-heating-oil prices actually fell last month, helping to offset the big jump in natural gas bills. Homeowners in many parts of the country were shocked with $200-plus natural gas bills in December.

The 3.6 percent rise in wholesale prices followed a 2.9 percent increase for 1999 and was the worst showing for this inflation gauge since a 5.7 percent rise in 1990.

Consumer prices have also accelerated this year but economists have not sounded overall inflation alarms because much of the deterioration is occurring because of the steep run-up in world energy prices, something they do not expect to see repeated in 2001.

The Federal Reserve last week announced a surprise one-half percentage point cut in a key interest rate. It was the biggest reduction in eight years and was seen as a signal that the central bank planned to aggressively fight a dramatic slowdown in economic activity.

Some analysts have expressed fears that America's record nearly 10-year-long economic expansion could be in danger of toppling into a recession but other economists say they believe the Fed is acting in time to avert a recession.

A second report Friday showed that retail sales in December managed to post a tiny, 0.1 percent gain. That bettered expectations that sales would plunge by as much as 0.5 percent because of the disappointing Christmas sales season.

Sales at auto dealers rose by 0.3 percent. However, analysts cautioned that much of that gain could reflect price increases, which are not factored out of the retail sales report. Wholesale prices of both cars and light trucks posted big increases in December.

Outside of food and energy, wholesale prices were up a more modest 1.2 percent in 2000, only a slight deterioration from a 0.9 percent rise in all of 1999.

Most economists are forecasting that inflation at both the consumer and wholesale levels will show significant moderation in 2001 as a two-year surge in energy costs levels off.

For all of 2000, energy prices jumped by 17.1 percent following an even bigger 18.1 percent rise in 1999. Energy prices had fallen 11.7 percent in 1998 as U.S. consumers benefited from the Asian currency crisis, which plunged 40 percent of the globe into recession and resulted in a sharp drop in energy demand.

For December, overall energy prices at the wholesale level fell by 0.7 percent as the prices of gasoline dropped by 8.4 percent, the biggest decline since July, while home-heating-oil costs fell by 1.2 percent.

The record 6.9 percent rise in natural gas prices surpassed the previous record of a 6.4 percent gain in June.

Wholesale natural gas prices have quadrupled from December 2000 compared with December 1999 to $10 a thousand cubic feet. In California prices have spiked to seven times that amount on occasions, adding to that state's electricity woes.

Food prices fell by 0.4 percent last month, reflecting a big drop in vegetable prices.

Outside the volatile food and energy sectors, the "core" rate of inflation at the wholesale level was up 0.3 percent in December as the price of alcoholic beverages jumped by 1.2 percent, the biggest gain since May.

Prices were also up for prescription drugs, up 0.6 percent, and new passenger cars, which rose by 0.5 percent.

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