Over the past few months, analysts have become increasingly concerned about pressures in the inflation pipeline. In December, the core intermediate index rose 0.5% and was up 8.3% year over year. And while core crude goods prices fell 1.7% last month, they are still up 20.1% over the past year.

So far, however, higher crude and intermediate prices have not filtered down to the consumer, as manufacturers have absorbed the costs.

Other data released Friday added to the concerns about rising inflation. Industrial production rose 0.8% in December, double the consensus forecast, while capacity utilization jumped to 79.2% from 78.6%, well above economists' estimate of 78.9%.

Still, Ian Shepherdson, chief economist at High Frequency Economics, said the strength is a "bit of a mystery, given the softness in manufacturing employment." He believes the data may have been skewed by seasonal adjustments. "Either way, we doubt these sort of gains can be sustained in the first quarter," he said.

Lacy Hunt, chief economist at Hoisington Investment Management, said he is looking for inflation to actually recede in 2005, as the economy slows down because of higher oil prices and further rate hikes by the Fed.

High energy prices are "contractionary, not inflationary, even if they temporarily lift the core rate," he said. "They are only permanent if the Fed monetizes them by accelerating monetary growth."

Hunt noted that the rate of increase in such money supply measures as M2 and M3 dropped to a nine-year low in 2004. Inflation "should reverse sharply to the downside this year, and the multiyear low in the core inflation rate lies ahead."

The consumer price index for December is scheduled for release on Jan. 19.

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