Wholesale prices up 0.9% in December

WASHINGTON — Wholesale prices moderated in December after a big surge the previous month, while industrial production rebounded from three consecutive declines.

The Federal Reserve, meanwhile, reported that the economy was expanding at a modest pace at the beginning of the year in spite of a weakness in housing.

Analysts said the reports released Wednesday indicated the Fed is on track to achieve its goal: The economy keeps growing, but slowly enough so inflation is kept under control without pushing the country into a recession.

The Labor Department reported that wholesale prices rose by 0.9 percent in December. That was more than economists expected, but not as much as the 2 percent gain in November, the biggest in 32 years.

Excluding volatile food and energy, wholesale prices rose by only 0.2 percent last month. The moderate showing should lend support to the view that inflationary pressures are starting to wane.

Industrial production rose by 0.4 percent, which proved much better than expected. Manufacturing rebounded, with gains at auto plants and factories making computers, electronic products, machinery and aircraft.

Production had declined in September, October and November. The increase in December supported forecasts that manufacturers should enjoy a solid 2007. The belief is that strength in exports and business investment will offset weakness in housing-related industries such as lumber and furniture.

Also Wednesday, the Fed released its latest survey of business conditions, reporting a modest pace in economic growth at the beginning of the year despite a severe slowdown in housing.

The Fed's report will aid policymakers when they meet on Jan. 30 and 31. Most analysts believe the Fed, which increased rates for two years to combat inflationary pressures, will keep rates unchanged probably through mid-2007.

"Inflation continues at a moderate pace, which is neither too hot for the Fed to do anything nor cold enough for a rate cut," said Joel Naroff, chief economist at Naroff Economic Advisors.

On Wall Street, the Dow Jones industrial average fell 5.44 points, to 12,577.15.

For all of 2006, wholesale prices rose by just 1.1 percent, compared with a 5.4 percent increase in 2005. The slight gain reflected a moderation in energy costs.