Consumer prices turn in best year since 1998

WASHINGTON -- Consumer inflation slowed to 1.6 percent in 2001, just half the increase of the previous year, in one of the few benefits from the recession.

It provided shoppers with bargains on everything from gasoline to computers.

The modest advance in the Labor Department's Consumer Price Index, a closely watched inflation gauge, came after consumer prices jumped 3.4 percent in 2000, the largest increase in a decade, the government reported Wednesday.

While a double-digit rise in energy prices led that spike, a dramatic decline in those prices played a key role in the significantly lower inflation reading for 2001. Prices for other items also fell or didn't go up as much, contributing to the moderation.

"Consumers are getting a break as lower inflation is not picking their pockets," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Low inflation is one of the slowed economy's few silver linings for consumers. Companies, facing sagging demand, have heavily discounted merchandise and offered free financing and other incentives to lure customers.

In December, consumer prices edged down 0.2 percent and in November, they were flat.

But the damage of the ailing economy, which slid into recession in March, could be seen in another report.

After increasing 4.5 percent in 2000, industrial production sank 3.9 percent last year, the biggest annual drop since 1982, when the country was in the depths of its worst recession since the Great Depression, the Federal Reserve said.

Manufacturers, hardest hit by the economic slump, have tried to cope by cutting production and letting workers go.

In December, industrial activity dipped only 0.1 percent after a steep 0.4 percent drop the month before. The smaller decline, along with an increase in automobile production last month, led some economists to believe manufacturing could be on the mend.

For manufacturing to recover fully, however, businesses will have to crank up investment again and foreign companies and consumers must increase their spending on American-made goods, boosting U.S. exports, economists said.