Consumer prices fall in Dec.; 2008 gain is smallest since 1954

WASHINGTON -- USA-ECONOMY/CPI (URGENT):U.S. consumer prices fall for 3rd month in Dec

The consumer price index fell 0.7% in December, the government said Friday, posting its lowest annual gain since 1954 for all 2008.

December's 0.7% drop follows a 1.7% decline in November.

Excluding volatile food and energy prices, so-called core inflation was unchanged in December. For the year, it was up a moderate 1.8%, compared with a 2.4% increase for all of 2007.

On a year-over-year basis, the consumer price index rose a scant 0.1% from December 2007, braking from a 1.1% increase the prior month. It was the weakest reading since CPI fell 0.7% in 1954. The index rose 4.1% in 2007.

The big improvement over 2007 occurred because of the sizable declines in energy prices in recent months.

Energy prices fell 8.3% in December, after declining 17% the prior month. Compared with December last year, energy prices were down a record 21.3%, with gasoline costs down 43.1%.

In December, gasoline prices fell 17.2%, largest monthly decline on records that go back 71 years.

Food costs were unchanged in December, and rose 5.8% for all last year.

In other reports Friday:

• The Federal Reserve said production at the nation's factories, mines and utilities fell 2% last month, after a 1.3% decline in November.

For all last year, industrial production declined 1.8%, a sharp reversal from the 1.7% increase in 2007. It marked the worst showing since a 3.4% decline in 2001, when the country was also in a recession.

The Fed said big industrial outlets were operating at 73.6% of capacity in December, down from 75.2% in November. That was 7.4 percentage points below the average from 1972 to 2007.

• The Reuters/University of Michigan Surveys of Consumers said its preliminary index reading of confidence for January rose slightly, to 61.9 from December's 60.1. But the figure is still near a half-century low.

The sizable slowdown in inflation gave consumers more spending power. Average weekly earnings, after adjusting for inflation, showed an increase of 2.9% last year, a big improvement from 2007, when average weekly earnings fell 1%.