Jan. 15, 2010 – 9:05 a.m.

Inflation Moderates, Production Up on Cold Winter Weather

Consumer Price Index (CPI) inflation rose a smaller-than-expected 0.1% in December, after surging on the heels of higher energy prices in November. Core inflation (non energy and non food) also posted a 0.1% increase – about the same as in the previous month. Inflation accelerated slightly on a year-over-year basis in December. All of that acceleration, however, could be attributed to a surge in energy prices, which rose almost 20 percent over the period.

Separately, industrial production picked up in response to colder winter weather and a surge in utility production.

On net, today's data confirms two things: The Fed is correct in its analysis of inflation, and should be more worried about unemployment than inflation at this stage of the game; and, the recovery clearly accelerated in the fourth quarter – growth may even have surpassed 5 percent. The composition of those gains, however, is still a disappointment, driven more by transitory factors such as a cold winter, and a slowdown in the pace of inventory liquidation, than by a fundamental healing of the economy.

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