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Smith Faculty
Opinion Article
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May 12,
2008
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By Dr. Peter Morici, Professor of
International Business
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What
to Watch in Wednesday's Consumer Price
Data
Wednesday, the Labor Department will
issue April data for the Consumer Price
Index. The consensus forecast is for a
0.3 percent increase in the headline
number and a 0.2 percent increase in the
core index—the headline number with
energy and food prices removed. My
published forecasts are 0.5 and 0.2
percent in these two indicators of
consumer inflation.
Rising gasoline, diesel and utilities
prices are driving up consumer prices.
The energy index should continue to
increase through the summer, even as
gasoline prices top out, because the
full brunt of rising oil prices have not
been felt by utilities—both electric and
natural gas. Look for utilities to be
asking regulatory commissions for large
rate increases and for those to be
reflected in consumer price data through
the fall.
Meanwhile the wrongheaded ethanol
program will continue to disrupt corn
and grain markets at home and abroad
causing shortages and rationing in
developing countries and rising prices
for grain derivative products—flour,
baked goods, meat, dairy, and processed
foods containing corn syrup and soy. The
president’s proposals for non-food based
ethanol derivatives are like General
Motor’s ads about electric cars. Those
benefits, if they ever arrive, are well
into the future.
Tomorrow look in the data for the
following:
The energy index should rise 2 to 4.5
percent. According to the Department of
Energy gasoline prices were up 6.1
percent in April, and gasoline prices
are about half the energy price
component. DOE and Labor Department data
do not always coincide because of timing
issues in monthly observations and the
DOE publishes its readings much earlier.
Food prices are expected to rise 4 to
5 percent annually, thanks to the pass
through effects of the ethanol program
and rising demand for grains in China
and other fast growing
developing-country economies. Any
reading less than 0.4 percent a month is
good.
To dig deeper, look at Table 1 for
the seasonally adjusted changes in
cereals and bakery products; meats,
poultry and eggs; and dairy. These
categories provide some indication of
the pass through effects of the ethanol
program and higher energy prices
generally. Also, those who watch travel
and entertainment expenses from
corporate perches, check out the data
for “food away from home.” It provides
an indication of cost pressures on
restaurants. Restaurants are feeling all
kinds of pressures but are inclined to
blame food prices most of all.
The core index is expected to
continue rising a bit more than 2
percent a year, and that comes to 0.2
percent a month. Federal Reserve
Chairman Bernanke would like to see
those prices rise less than 2 percent
annually, but with so many pressures in
global markets pushing up oil and other
commodity pressures, that is a tough
goal for U.S. monetary policy. U.S.
interest rate policy will have virtually
no impact on global oil, metal, cement,
lumber and other commodity prices. Even
the U.S. domestic natural gas market has
been globalized by recent breakthroughs
in the technology for shipping LNG and
the build out of U.S. terminals.
Homeowners heating with gas will enjoy a
much smaller measure of insulation from
surging global petroleum prices than in
the past.
In Table 1, look for the moderating
effects of slack demand on apparel and
motor vehicle prices. However, pricing
pressures will continue in health care
and education—i.e., tuition, other
school fees and childcare. Schools and
universities will look to pare wage
increases to accommodate rising utility
costs but such efforts generally have
limited effectiveness.
Peter Morici is a professor at the
Robert H. Smith School of Business and former Chief Economist at
the U.S. International Trade Commission. ►More Faculty
Opinion Articles |
