Despite growing worries about a future surge in inflation, consumer prices barely budged last month and fell for all of 2009 -- the first annual decline in more than half a century.

The latest report on the consumer price index, released Friday by the Bureau of Labor Statistics, increases the likelihood that Federal Reserve officials at their next meeting later this month will stand pat on their policy of setting interest rates at near zero for “an extended period.”

In recent weeks, there have been increasing signs of a split at the Fed over how soon the central bank should begin tightening credit and monetary policy to avoid a future outbreak of inflation. Some officials want to start raising rates relatively soon, while most see no hurry to change course amid double-digit unemployment and little growth in prices.

And there appears to be little or no support for a pull-back in the immediate future.

“The Fed is correct in its analysis of inflation, and should be more worried about unemployment than inflation at this stage of the game,” Diane Swonk, chief economist at Mesirow Financial, wrote in a research note.

In December, consumer prices edged up just 0.1% from November, and they were up 2.7% from a year earlier. Stripping out food and energy prices, which tend to be volatile, consumer prices were up a modest 1.7% over the 12-month period.

Averaging all the months last year, the government said, the price index fell 0.4% from 2008. The last time this measure dropped was in 1955 when Dwight D. Eisenhower was president and Ray Kroc opened his first McDonald’s restaurant.

Back then, unemployment was below 5% and the economy was creating hundreds of thousands of jobs a month.

Last year was a different story. The fall in the consumer price index largely stemmed from lower oil prices and underscored the deep recession that also held down wages and led to outright price declines for certain goods, such as personal computers and used cars, as well as for services such as lodging.

“It’s good news for consumers; inflation was low,” said Nigel Gault, an economist at IHS Global Insight. But the bad news, he said, was that fewer people in America had jobs, and wages overall barely kept pace.

Gault reckons this year won’t be any better for consumers. He sees overall prices rising 1.7% this year, and core inflation, which excludes food and energy, turning up just 1.5%. But wages will probably increase at a similarly modest rate, meaning most consumers won’t see gains in their buying power.

With high unemployment and sluggish consumer demand, businesses will find it tough to raise prices. Even with the recession technically over, consumers remain very cautious.

And some analysts expect inflation to slip even lower than 1.5% this year, considerably below the Fed’s target inflation rate of 2%. So why the heated debate over inflation?

The main concerns have to do with the inflation outlook beyond the next year or two. Many worry about the long-term effects of low borrowing rates, the Fed’s emergency stimulus programs that have pumped billions of dollars into the economy and the massive federal budget deficit -- ingredients that could fuel inflation as the economy recovers.

For now, Fed policymakers and many other economists think it would be far more risky to withdraw stimulus dollars and raise rates too early than to leave things alone, given the fragility of the recovery and the slack in the economy.

In a separate report Friday, the Fed said industrial production rose 0.6% last month, powered by gains at utilities as the weather turned cold. But manufacturing production declined 0.1% over the month. And the amount of production capability being used, one measure of resource slack, edged only slightly higher in December to 72%, well below the pre-recession level of almost 80%.

don.lee@latimes.com