Meanwhile, in a dramatic sign of the slowdown affecting the U.S. economy, the government said that output at U.S. factories plunged by 1.1 percent in December — the biggest setback since the end of the last recession in 1991.

The Labor Department said Wednesday that its Consumer Price Index, the most closely watched inflation gauge, posted a 0.2 percent increase last month, the third straight month of price moderation.

However, for the entire year, the 3.4 percent rise in consumer prices marked the biggest advance since a 6.1 percent surge in 1990. Consumer prices were up 2.7 percent in 1999, which had been the worst showing since 1996, although a fall in gasoline prices helped to hold back inflation in December.

The big plunge in manufacturing output reflected widespread plant shutdowns by auto companies as they tried to deal with a growing backlog of unsold cars. Mining, which includes oil drilling, posted a 0.3 percent rise while utility output jumped by 6.5 percent as utility firms responded to the record cold.

Analysts said the 1.1 percent output plunge at manufacturing plants, the largest since a similar decline in March 1991 as the last recession was ending, was more evidence that the economy was slowing dramatically at the end of the year.

Slowing Inflation, Averting Recession

The last two years have been heavily influenced by a big runup in energy costs, which had fallen sharply the previous year as global demand slumped in the wake of the Asian currency crisis.

Economists are forecasting that inflation will moderate this year in response to the Federal Reserve's string of interest rate increases from July 1999 to May 2000, aimed at slowing the surging economy to a more sustainable pace.

On Jan. 3, the Fed, alarmed by how sharp the slowdown has been over the past few months, suddenly switched course and began cutting rates in an effort to avert a full-blown recession.

Many economists are predicting further rate cuts at the Fed's regularly scheduled meetings on Jan. 30-31 and in March and May if various economic indicators continue to flash recession warnings.

The 0.2 percent rise in consumer prices last month reflected a small 0.2 percent rise in energy costs and a tiny 0.1 percent increase in food costs. Gasoline pump prices actually fell by 1.7 percent last month.

Outside food and energy, inflation was also contained with the so-called core rate of inflation up by just 0.1 percent, the smallest gain in a year.

For all of 2000, the core rate of inflation rose by 2.6 percent, compared to an increase of 1.9 percent rise in 1999.

Economists believe both core inflation pressures and the overall inflation gauge will moderate in 2001 as the economy slows. Overall economic growth, which soared at an estimated annual rate of around 5 percent in 2000, is expected to slow to just 2.5 percent this year.

For all of 2000, energy prices rose by 14.2 percent, the biggest advance since an 18.1 percent rise in 1990 during the Persian Gulf conflict. Gasoline prices were up 13.9 percent following an even bigger 30.1 percent jump in 1999.

Natural gas prices, which have produced eye-popping bills for many homeowners, were up 4.4 percent in December and a record 36.7 percent for all of 2000.

Another area of rising price pressures last year was in medical costs, which rose by 4.2 percent, the worst showing since a 4.9 percent jump in 1994.

Food prices were up 2.8 percent last year, the biggest increase since a 4.3 percent rise in 1996.

— The Associated Press contributed to this report