December consumer prices flat

1.7% gain for 2012, down from 3% increase in 2011

Welders work on sides for refrigerated railcars at the Greenbrier Cos.' Gunderson railcar plant in Portland, Oregon, U.S., on Tuesday, Jan. 15, 2013. Industrial production in the U.S. climbed for a second month in December as demand picked up for capital equipment, showing factories strengthened entering 2013. Photographer: Natalie Behring/Bloomberg
Welders work on sides for refrigerated railcars at the Greenbrier Cos.' Gunderson railcar plant in Portland, Oregon, U.S., on Tuesday, Jan. 15, 2013. Industrial production in the U.S. climbed for a second month in December as demand picked up for capital equipment, showing factories strengthened entering 2013. Photographer: Natalie Behring/Bloomberg

— Consumer prices were unchanged in December, Labor Department data showed Wednesday, capping the thirdsmallest annual gain in the past decade.

The price of products rose 1.7 percent in 2012, down from a 3 percent increase in 2011, the Consumer Price Index showed.

A separate report from the Federal Reserve on Wednesday said factory output continued to rise in December.

Price increases will probably remain restrained as retailers such as Target Corp. use discounts to attract customers and budget battles in Washington hurt confidence. Federal Reserve policymakers are likely to maintain unprecedented easing measures as long as inflation holds below their target level and absent further progress on reducing unemployment.

“There’s nothing to worry about on the inflation front,” so the Fed will continue easing measures, said Bricklin Dwyer, an economist at BNP Paribas in New York. “We’re seeing weaker domestic demand playing into weaker price pressures.”

Consumer prices rose 2.4 percent on average over the past decade.

The core index, which excludes volatile food and energy costs, climbed 0.1 percent in December for the fifth time in the past six months. For 2012, core prices rose 1.9 percent compared with a 2.2 percent advance in 2011. Last year’s gain matched the average increase over the past 10 years.

The Fed’s preferred price measure, which is tied to consumer-spending patterns, rose 1.4 percent in the 12 months toNovember, according to data from the Commerce Department.

Central bankers in December adopted a more flexible approach to their interest-rate outlook, saying borrowing costs will stay low “at least as long” as unemployment remains above 6.5 percent and if the Fed predicts inflation of no more than 2.5 percent one or two years in the future. That language replaced an earlier link between the rate outlook and calendar dates. Unemployment was 7.8 percent in December and November.

“For the next few years, it’s unlikely that we’re going to see inflation really push up above that 2 percent level,” that is the Fed’s longer-term goal, said Daniel Silver, an economist at JPMorgan Chase & Co. in New York.

Fed Chairman Ben Bernanke earlier this week tried to assuage investors that the central bank will remain vigilant against any flare-up in prices.

“There seems to be a pretty strong presumption that we should be aggressive in monetary policy,” Bernanke said at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor. “We will be paying very close attention to make sure that inflation stays well-contained as it is today.”

The core measure last month was restrained by declines in the cost of used cars, clothing and medicine.

Tepid global growth and falling energy costs, including cheaper gasoline, are mitigating inflation risks. Energy costs decreased 1.2 percent in December. Gasoline fell 2.3percent.

Fuel costs so far this year have held near a 2012 low reached in December. A gallon of regular gasoline at the pump dropped to a $3.30 average on Monday, close to the$3.22 reached on Dec. 19 that was the lowest in a year, according to AAA, the biggest U.S. auto club.

Low fuel prices may help Americans’ buying power even as higher taxes restrain their discretionary spending. The fiscal pact passed by Congress on Jan. 1 allowed the payroll tax used to pay for Social Security benefits return to the 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.

A separate report from the Labor Department on Wednesday showed wages adjusted for inflation climbed 0.3 percent on average in December after increasing 0.6 percent the prior month. For all of 2012, they were up 0.3 percent.

The Federal Reserve said U.S. factory production rose in December for the secondstraight month, buoyed by more output of autos, electronics and business equipment.

Factory output increased0.8 percent last month. That followed a 1.3 percent rise in November, which partly reflected a rebound from Hurricane Sandy.

Total industrial production increased 0.3 percent in December. That followed a 1 percent rise in November. Production slowed last month mostly because utility output dropped 4.8 percent, reflecting unseasonably warm weather.

Paul Ashworth, chief U.S. economist at Capital Economics, said that the December report showed that manufacturing was “just about keeping its head above water.” Other analysts said they expected slow output gains in 2013.

Information for this article was contributed by Michelle Jamrisko and Cotten Timberlake of Bloomberg News and Martin Crutsinger of The Associated Press.

Business, Pages 25 on 01/17/2013

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