Consumers strained by price surge last year

By Glenn Somerville

WASHINGTON (Reuters) - Shoppers faced moderate price rises in December, but that capped a year in which prices soared at the sharpest rate in 17 years, pressuring households also dealing with a steep housing downturn and tighter credit.

The Labor Department said on Wednesday its Consumer Price Index rose 0.3 percent in December, less than half November's 0.8 percent jump. For all of 2007, the CPI rose 4.1 percent, well ahead of 2006's 2.5 percent gain and the steepest since 1990.

Separately, the Federal Reserve said output by the nation's mines, factories and utilities was flat in December and in 2007 posted its weakest gain since 2003.

The data, combined with a report on Tuesday showing a drop in December retail sales, "underlines our view that we're on the razor's edge here, that we could be headed into recession," said Mike Schenk, senior economist with Credit Union National Association in Madison, Wisconsin.

A Reuters poll of 20 Wall Street primary dealers -- big firms that deal with the Fed directly -- found all expect the U.S. central bank to cut interest rates by a half percentage point when it meets January 29-30.

The White House and lawmakers in Congress also are discussing a complementary fiscal stimulus plan. Democratic and Republican leaders of the House of Representatives agreed on Wednesday to cooperate in developing stimulus proposals and the White House said President George W. Bush would speak with lawmakers about the economy on Thursday.

Stock prices closed lower, with the Dow Jones industrial average down 35 points, partly because of declining prices for energy stocks.

The Nasdaq Composite Index lost 23 points as technology shares weakened after a disappointing earnings report from sector bellwether Intel Corp. Intel's chief financial officer, Stacy Smith, said he was a "little bit cautious" about the economy's prospects, a comment that fed investor fears of a potential downturn.