Consumer prices data open door to rate cut

(Reuters) - Consumer prices rose modestly in December while industrial production was flat, leaving the door open for the Federal Reserve to slash interest rates later this month to shore up an economy that some fear is on the verge of a recession.

The reports released on Wednesday also showed consumer prices shot up last year at the fastest rate in 17 years, driven by soaring energy costs, while manufacturing growth was the weakest since 2003.

The data "underlines our view that we're on the razor's edge here, that we could be headed into recession," said Mike Schenk, senior economist with Credit Union National Association in Madison, Wisconsin.

Stock markets were mixed, with technology shares hurting after a disappointing earnings report from sector bellwether Intel Corp. Bond prices weakened while the dollar's value declined against other major currencies.

The Consumer Price Index, the most broadly used gauge of inflation, rose 0.3 percent in December, slightly ahead of economists' forecasts for a 0.2 percent rise, the Labor Department report showed.

Still, core prices that strip out volatile food and energy items rose 0.2 percent last month - in line with forecasts - following a 0.3 percent November increase.

For the full year, CPI jumped 4.1 percent, well ahead of the 2.5 percent increase posted in 2006 and the largest 12-month rise since a 6.1 percent increase in 1990. Core prices were up 2.4 percent for the full year, following a 2.6 percent pickup in 2006. That was the smallest 12-month rise in core prices since a 2.2 percent increase in 2005.

 

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