Another huge plunge in energy costs sent wholesale inflation down for a fifth straight month in December, closing out a year in which prices dropped by the largest amount in seven years.
Wholesale prices fell by 1.9 percent in December, the Labor Department said Thursday. That was just below the 2 percent decline that economists expected.
For the year, the government said wholesale prices fell by 0.9 percent, the first annual decline since prices dropped by 1.6 percent in 2001. That also was a year in which the country was in a recession.
By contrast, inflation at the wholesale level soared by 6.2 percent in 2007. Until a few months ago, there were fears that a relentless surge in energy prices could set off a wider bout of inflation in the economy.
But since September, worries about inflation have been replaced by fears that the worst financial crisis since the 1930s could push the country into a deep and prolonged recession.
There are some concerns that the price declines could become so pronounced that the country could face a debilitating bout of falling prices, or deflation, something not experienced in the U.S. since the Great Depression.
However, most economists believe that threat is still remote. They have confidence that the Federal Reserve, which last month cut a key interest rate to nearly zero, has the tools needed to keep deflation from becoming a problem.
Core inflation, which excludes food and energy, posted a modest 0.2 percent rise in December, slightly higher than the 0.1 percent increase analysts expected. For the year, core inflation was up 4.3 percent, the biggest annual increase since a 4.4 percent increase in 1988.
But economists believe inflation pressures outside of food and energy will quickly subside now that the country is mired in the longest recession in a quarter-century.
The 1.9 percent overall drop in the government’s Producer Price Index for December, which measures costs before they reach consumers, represented the fifth consecutive monthly decline. The decreases were led by plunging energy costs.
Energy prices last month dropped by 9.3 percent, reflecting a record 25.7 percent plunge in the cost of gasoline. Food costs fell by 1.5 percent, the biggest monthly decline since February 2006.
The cost of passenger cars jumped by 1.2 percent in December, the biggest gain since August. But economists saw that increase as temporary, given all the problems facing automakers, who are suffering with slumping sales because of the weak economy.
General Motors Corp. and Chrysler LLC were forced to obtain government bailouts last month in an effort to buy time to reorganize.
The big slowdown in inflation at the wholesale level also has been reflected in falling prices at the consumer level. Consumer prices plunged by 1.7 percent in November, the largest one-month decline on records going back 61 years. That surpassed a 1 percent drop in October.
The government will release the December report on consumer prices on Friday. In advance, economists surveyed by Thomson Reuters are looking for that report to show a 0.9 percent decline, with core inflation at the consumer level expected to post a small 0.1 percent increase.