- The Washington Times - Thursday, January 16, 2003

WASHINGTON, Jan. 16 (UPI) — The Labor Department said Thursday inflation remained tame in December as the all urban Consumer Price Index, a key measure of inflation at the retail level, inched up 0.1 percent.

The core index, which excludes food and energy items, also rose 0.1 percent during the final month of 2002. Economists on Wall Street were expecting the CPI to rise 0.2 percent while the core rate was expected to rise 0.1 percent.

The latest report on inflation showed for all of 2002 the CPI rose at a 2.4-percent annual pace, compared with a 1.6-percent pace during 2001. The core rate rose at a 1.9-percent clip, compared with a 2.7-percent rate in 2001.

The consumer price index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation.

The consumer price index is the most widely followed indicator of inflation in the United States. Inflation is a general increase in the price of goods and services. The relationship between inflation and interest rates is the key to understanding how data like the CPI influence the markets.

As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates accordingly. The effect ripples across stocks, bonds, commodities, and portfolios, often in a dramatic fashion.

Investors, preoccupied by worries the economic recovery might fizzle, have paid little attention to inflation statistics recently. Fed Chairman Alan Greenspan has described the risk of inflation in the near term as "remote."

On Wednesday the government reported the Producer Price Index, a key measure of inflation at the wholesale level, was unchanged in December after falling 0.4 percent in November. Economists were expecting the PPI to rise 0.3 percent during the final month of 2002.

Excluding the often volatile food and energy sectors, the so-called core PPI fell 0.3 percent after falling 0.3 percent during the previous month and rising 0.5 percent in October. Economists were expecting the core rate to rise 0.1 percent.

For all of 2002, wholesale prices rose 1.2 percent after declining 1.6 percent decline in 2001. Core prices declined 0.4 percent in 2002 after rising 0.9 percent during 2001.

The PPI report showed prices for energy, gasoline and food rose while prices for autos and capital equipment declined.

Economists said the PPI report highlighted the difficulties manufacturers have been having in trying to raise prices.

The latest report on the CPI showed housing prices, which account for 40 percent of the index and include some energy costs, rose 0.2 percent in the final month of the year, matching November's rise and less than the 0.3 percent gain posted in October. The cost of shelter, which includes rents, rose 0.2 percent after rising 0.3 percent during November.

Energy prices, which account for 6 percent of the index, fell 0.6 percent in December after falling 0.2 percent in November and jumping 1.9 percent in October. Gasoline prices fell 1.4 percent after dropping 0.4 percent in November.

Food prices, which account for 15 percent of the index, rose 0.3 percent after rising 0.2 percent in November and 0.1 percent in October.

The report showed personal computer prices fell 1.5 percent after dropping 3.4 percent during the previous month.

Clothing costs fell 0.5 percent after falling 0.4 percent a month earlier and education costs rose 0.2 percent after rising 0.4 percent in November.

Air fares rose 0.4 percent after falling 0.8 percent and new vehicle prices fell 0.4 percent after slipping 0.1 percent in November. Prices for tobacco and items such as cigarettes rose 0.4 percent after being unchanged in November.

In a separate report, the Labor Department said the average weekly earnings adjusted for inflation were unchanged in December after increasing 0.1 percent in both November and October.

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