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Inflation eased in '06, while wages rose

WASHINGTON -- Inflation in 2006 eased to the slowest pace in three years as consumers finally got some relief on energy and medical bills. In further good news, inflation-adjusted wages rose at the fastest clip in nearly a decade.

The Labor Department reported yesterday that the Consumer Price Index climbed by 2.5 percent last year, the best showing since 2003 and nearly a full percentage point lower than the 3.4 percent jump in 2005.

The encouraging news stemmed from a sizable slowdown in energy costs in the second half of last year, after 2 1/2 years when the price of gasoline and other fuels had surged to new highs.

Also helping was a significant moderation in health care costs. They rose by 3.6 percent, the smallest annual gain since 1998.

The price of gas at the pump did jump again in December, helping push up the CPI by 0.5 percent for the month. But analysts said gasoline costs should fall again in coming months, reflecting recent declines in crude oil, which closed yesterday at $50.48 per barrel in New York trading, far below the $77-plus record set in July.

The slowdown in prices last year occurred as workers' wages, which have lagged behind the recovery, began to show bigger gains.

That combination of lower inflation and faster wage growth translated into an increase in inflation-adjusted weekly wages of 2.1 percent for the 80 percent of the work force in nonsupervisory positions. The increase was the biggest gain since 1997 and followed three straight years of declines .