Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years, even though prices generally remained...

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WASHINGTON — Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years, even though prices generally remained tame outside of those two areas.

Consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said today. Consumers felt the pain when they filled up their gas tanks or shopped for groceries. Prices for both energy and food shot up by the largest amount since 1990.

The Consumer Price Index (CPI) rose by 0.3 percent in December, slower than the 0.8 percent pace in November, as food costs were flat for the month and energy prices rose by 0.9 percent after an even bigger 5.7 percent jump in November.

Outside of food and energy, inflation rose a more moderate 0.2 percent in December. This measure of core inflation rose by 2.4 percent for all of 2007, down slightly from a 2.6 percent increase in 2006.

In the Seattle area, consumer prices rose by 4.6 percent in 2007, with higher transportation costs behind much of the increase.

The Bureau of Labor Statistics reported that the region’s overall transportation index rose 5.8 percent last year, and gasoline prices were up 20.5 percent.

Housing costs, which have driven much of the Seattle area’s inflation increase in recent years, have moderated in the past few months, blunting some of the inflation impact from transportation and fuel. The region’s housing cost index fell 0.2 percent between October and December, though for the full year it rose by 4.9 percent.

The Federal Reserve is closely watching to see whether the jump in food and energy prices nationwide becomes more widespread and starts pushing core inflation higher.

Separately today, the Fed released its new snapshot of business conditions around the country, known as the Beige Book, which suggested that the strains from a persistent housing slump and harder-to-get credit are affecting the behavior of individuals and businesses alike — making them more cautious.

And in a third report, the Fed said today that output at the nation’s factories, mines and utilities showed no growth in December.

The expectation is that the Fed will cut a key interest rate by a half-point when officials meet at the end of this month. Fed Chairman Ben Bernanke raised hopes for further rate cuts in a speech last week when he said that economic risks had grown significantly in recent weeks.

The rising risk of a recession has prompted politicians to consider stimulus packages to give the economy a jump-start to either prevent a recession or at least mitigate its fallout. President Bush has said he may unveil a plan around his Jan. 28 State of the Union address. Democrats in Congress and presidential candidates in both parties are putting forward their own plans.

Analysts said that with CPI core prices generally remaining well-behaved, it will give the Fed leeway to cut interest rates further to battle a serious economic slowdown triggered by a steep slump in housing and a spreading credit crisis.

The CPI report showed that the 4.1 percent increase in overall prices was the biggest since a 6.1 percent jump in prices in 1990.

Energy costs rose by 17.4 percent this past year while food costs rose by 4.9 percent. Both were the biggest increases since 1990. Gasoline prices were up 29.6 percent, the biggest increase since they soared by 30.1 percent in 1999.

The 2.4 percent rise in prices outside of food and energy was the smallest since a 2.2 percent rise in 2005.

Clothing costs and the price of new cars actually fell for the year, both dropping by 0.3 percent, while airline fares, reflecting higher fuel costs, were up 10.6 percent and medical care, always one of the leading areas of price increases, rose by 5.2 percent for 2007.

Workers’ wages failed to keep up with the higher inflation. Average weekly earnings, after adjusting for inflation, dropped by 0.9 percent in 2007, the biggest setback since a 1.5 percent fall in 2005.

The Fed’s Beige Book report said the economy grew during the survey period — from the middle of November through December — “but at a slower pace” than the previous survey taken during late fall. Credit problems intensified in December as did troubles in the housing market.

The survey observed that “holiday sales were generally disappointing” and pointed to “further weakness in auto sales.”

Bernanke, in a major speech last week, pledged to aggressively cut a key interest rate to prevent all these problems from plunging the economy into a recession. Many economists now predict the Fed will lower rates by a bold half-percentage point at the end of a two-day meeting on Jan. 30. The Fed started cutting rates in September, the first time in four years; it lowered rates three times last year. However, some critics on Wall Street and elsewhere criticized Bernanke for not taking action sooner and more forcefully.

Bernanke made clear last week that the chances of the economy seriously weakening was the biggest danger, and he sought to send a reassuring message to Wall Street and Main Street that the Fed will do all it can to bolster economic activity.

The recent leap in the nation’s unemployment rate from 4.7 percent in November to 5 percent in December, a two-year high, rang a warning bell on the economy. It raised concerns that consumers, whose spending is vital to a healthy economy, would clamp down, sending the economy into a tailspin.

Seattle-area inflation data was reported by Seattle Times business reporter Drew DeSilver.