DON’T BE FOOLED BY the surprising year-end swoon in inflation. Despite the brief respite from sky-high energy prices in December, expensive oil is already back, and some economists warn that crude runs the risk of remaining at lofty levels throughout 2006.
“We had more of a drop in energy [during December] than I or most people were anticipating,” says Dean Baker, co-director of the Center for Economic and Policy Research, a Washington, D.C., think tank. “But that’s clearly not going to stick.”
Surging energy prices pushed consumer inflation to a five-year high in 2005, outpacing average wage gains for most American workers, the Labor Department reported Wednesday.
The department’s consumer price index, a widely followed inflation gauge, rose 3.4 percent last year, the fastest rate since 2000, largely reflecting climbing prices for fuel oil, gasoline, natural gas and electricity, the department said.
However, workers’ average pay rose more slowly. Average hourly wages fell 0.5 percent and average weekly earnings declined 0.4 percent, after adjusting for inflation, in the 12 months that ended in December, the department said in a separate report.
The Labor Department said Wednesday that its consumer price index fell 0.1 percent in December, though record fuel prices sent inflation rising in 2005 at the fastest pace in five years.
The December decline followed a 0.6 percent drop in November and marked the first back-to-back declines in two years.
For the full year, inflation increased 3.4 percent, slightly higher than a 3.3 percent increase in 2004 and the biggest advance since a similar increase in 2000. Energy costs jumped 17.1 percent, the biggest increase since an 18.1 percent surge in 1990 when global oil markets were roiled by Iraq’s invasion of Kuwait.