updated 1/14/2005 11:25:22 AM ET 2005-01-14T16:25:22

Prices at the wholesale level, helped by the largest drop in energy prices since April 2003, fell by 0.7 percent in December while output at the nation’s factories, mines and utilities soared by 0.8 percent, the government reported Friday.

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The Federal Reserve said that the December jump in industrial production matched a similar 0.8 percent gain in October and was far above a modest 0.2 percent rise in November, allowing manufacturers to end the year on a solid note.

The 0.7 percent drop in wholesale prices last month was a much better performance than economists had been expecting.

However, for the year, wholesale inflation was not as well contained with prices rising by 4.1 percent, the Labor Department said in releasing its Producer Price Index for December. That was the biggest gain since a 5.7 percent surge in 1990 during the lead-up to the first Iraq war. Both years were heavily influenced by a surge in energy costs.

Excluding food and energy, the so-called core rate of wholesale inflation rose by a more moderate 2.2 percent in 2004 following a 1 percent increase in the core inflation rate in 2003.

Manufacturers were also heartened by the big jump in industrial output, which included a 0.7 percent rise in factory output, a 2.7 percent increase in output at utility companies and a 0.4 percent increase in mining output.

Daniel Meckstroth, chief economist at the Manufacturers Alliance/MAPI, an industry trade group, said that the strong increase in manufacturing activity “shows that the industrial sector is resilient and that this expansion is broad-based.”

In another report, the Commerce Department said that inventories held by businesses on shelves and backlots rose by 1 percent to a seasonally adjusted $1.275 trillion in November. It was the largest increase since a similar 1 percent rise last July.

Analysts said some of the inventory buildup was probably unplanned and reflected the fact that overall sales slowed during the month, rising by only 0.4 percent after a much bigger 1.4 percent October increase.

The Federal Reserve has been increasing interest rates since last June to make sure inflation does not get out of hand, but it has been doing so at a moderate pace of quarter-point moves, believing it can take its time because inflation outside of energy costs has remained well contained.

For December, the 0.7 percent drop in wholesale prices was the largest since a 1.5 percent decline in April 2003.

Last month’s decline was led by a 4 percent plunge in energy prices, also the biggest drop since April 2003. Gasoline prices fell by 11.1 percent with the costs of home heating oil and natural gas also posting declines.

Food prices at the wholesale level edged up a tiny 0.1 percent in December after rising by 0.4 percent in November. The price moderation reflected a big 26.4 percent drop in the costs of vegetables, the biggest decline since April 2002. That decline helped to offset increases in the cost of beef, eggs, dairy products and fresh fruits.

Outside of food and energy, prices in December rose by a slight 0.1 percent, following a gain of 0.2 percent in November. This slowdown in core inflation reflected a drop in auto prices, with passenger cars falling by 0.2 percent and the cost of light trucks down by 0.1 percent. Both declines reflected more aggressive discounting by automakers.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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