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U.S. December Producer Prices Rise .9%; Core Prices Up .1%

U.S. producer prices rose in December. Businesses paid more for fuel, but costs excluding energy and food increased less than forecast.

From Bloomberg News

U.S. producer prices rose in December. Businesses paid more for fuel, but costs excluding energy and food increased less than forecast.

Prices paid to factories, farmers and other producers rose 0.9 % following a 0.7 % decline in November. Core prices, which exclude fuel and food, increased 0.1 % for a second month, limited by cheaper vehicles and computers.

Core producer prices rose 1.7 % last year, less than the 2.3 % rise in 2004, suggesting businesses weren't able to fully pass along higher costs for energy and other raw materials. Federal Reserve policy makers have signaled they're closer to an end in a series of interest rate increases to stamp out inflation.

Producer prices were up 5.4 % last year, compared with 4.2 % in 2004, reflecting a 24 % surge in the cost of energy.

Energy prices rose 3.1 % last month, compared with a 4 % decrease in November. The price of gasoline prices increased 12.3 %, the biggest rise since September.

Excluding energy, inflation was tame. Automobile prices fell 0.2 % last month after a 0.8 % decline in November.

General Motors Corp., the world's largest automaker, plans to cut prices on about 80 % of its cars and trucks after its U.S. market share fell to an 80-year low last year. The average reduction will be $1,300, and some will be as much as $2,500, the Detroit-based company said this week.

Computers

The cost of computers dropped 2.4 % after a 1.1 % decline the month before. Prices for capital equipment rose 0.1 % after falling 0.1 % in November.

Food prices rose 0.9 % following a 0.5 % increase in November, the government said. Beef and vegetable prices led the December increase.

The cost of intermediate goods, products such as lumber and steel that are partially finished, rose 0.2 %, today's report showed. Excluding food and energy, intermediate prices rose 0.3 %.

Prices of materials used at the earliest stage of the production process, including scrap steel and timber, fell 2.3 % after falling 1.2 % in November. Excluding food and energy, core raw material prices were unchanged.

Stiffer competition has discouraged many businesses from raising prices because of the risk of losing market share.

Import Prices

Prices of goods imported into the U.S. unexpectedly fell for a second month in December, the first back-to-back decrease since 2004, a Labor Department report yesterday showed.

At the same time, Kansas City Fed Bank President Thomas Hoenig said inflation risks linger because of high energy prices and the threat of wage pressures. Crude oil futures were more than a third higher on average last month than in December 2004.

``The longer energy prices remain at elevated levels, the greater the probability that these higher costs will be passed on from producers to consumers,'' Hoenig said in a Jan. 9 speech to Kansas City business leaders.

DuPont Co., the third-largest U.S. chemical maker, has been trying to boost prices to keep up with increased costs for raw materials.

The run-up in materials costs ``got worse'' during the fourth-quarter, said Gary Pfeiffer, chief financial officer at the Wilmington, Delaware-based company, on a Jan. 11 conference call with investors. ``I would expect 2006 to be a year of very significant raw materials cost increases for the products we buy.''

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