Energy costs push inflation higher

WASHINGTON -- The average American worker got squeezed in 2005 between the biggest jump in energy prices in 15 years and wages that failed to keep up with inflation.

As a result, hourly earnings after adjusting for inflation fell by 0.5 percent in December compared to what workers were earning in December 2004, the Labor Department reported yesterday.

Workers did see their wages rise last year. It was just that prices rose at a faster pace -- 3.4 percent for the 12 months ended in December, Labor said.

The 0.5 percent drop in inflation-adjusted hourly earnings last year followed a 0.7 percent fall in 2004 for the 80 percent of the US workforce that is employed by the private sector in nonsupervisory jobs.

The main culprit in last year's jump in inflation was a 17.1 percent surge in energy prices, the biggest advance since 1990, as gasoline prices topped $3 per gallon for a time.

Overall prices actually declined by 0.1 percent in December, an unexpectedly good performance, following an even bigger 0.6 percent drop in November. Outside of the volatile food and energy categories, core consumer inflation rose by just 2.2 percent last year, matching the performance in 2004.

Also, in its latest look at regional economic conditions, the Federal Reserve reported yesterday that the economy was expanding at a moderate pace as the new year began with employment, manufacturing, and consumer sales all rising while price increases were described as moderate.

In New England, business expanded ''although this growth is not generally translating into increases in employment," according to the report. Business reported a positive outlook, with most of them expecting ''more of the same" in 2006. Residential housing growth continued to slow.