The cost of living increased 0.3 percent after a 0.8 percent gain in November, the Labor Department said today in Washington. Output at U.S. factories was unchanged in December as exports helped make up for declines in auto and housing- related production, the Federal Reserve said separately.
Slower growth will make it more difficult for companies to pass on higher costs, suggesting inflation will cool from last year's pace, the fastest in 17 years, economists said. Investors' attention may now shift to Chairman Ben S. Bernanke's testimony on the economy tomorrow at a hearing in Congress.
``With the sluggish growth outlook and rising risk of recession, inflation concerns have receded,'' said Zach Pandl, an economist in New York at Lehman Brothers Holdings Inc., which correctly forecast the increase in prices. ``The Fed is clearly focusing on growth at this point.''
Economists had anticipated a 0.2 percent increase in consumer prices last month, according to the median forecast in a Bloomberg News survey.
Prices excluding food and energy advanced 0.2 percent, after a 0.3 percent increase, matching the median estimate.
Treasury notes were little changed after the consumer price report and later slipped. The yield on the benchmark 10-year note was 3.68 percent at 10:33 a.m. in New York, little changed from late yesterday. Stocks dropped after an Intel Corp. sales forecast spurred concern technology profits will weaken.
Capacity Use
Capacity utilization, which measures the proportion of plants in use, fell to 81.4 percent from 81.6 percent in November, indicating greater slack in the economy, the Fed's report showed. Economists had predicted a 0.2 percent drop in output and a capacity-in-use rate of 81.2 percent.
``There is nothing that would keep the Fed from cutting 50 to 75 basis points later this month,'' based on today's data, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp. in New York.
Traders anticipate the Fed will cut its benchmark rate to 3.75 percent, from 4.25 percent, this month, futures prices show. The chance of a 75 basis-point cut was 42 percent. Policy makers are next scheduled to gather Jan. 29-30. A basis point is 0.01 percentage point.
For all of last year, consumer prices rose 4.1 percent, the most since 1990. The core rate climbed 2.4 percent after a 2.6 percent increase in 2006.
Energy Costs
Energy prices last month rose 0.9 percent, after gaining 5.7 percent the previous month. Fuel costs were up 18 percent in 2007, also the most in 17 years.
Food prices, which account for about one-fifth of the CPI, increased 0.1 percent, the smallest gain of any month in 2007.
The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.
The government yesterday said producer prices unexpectedly eased 0.1 percent at the end of a year that saw the biggest annual jump in more than a quarter century. The cost of imported goods was unchanged in December, a report last week showed.
PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.
