Facebook Blogging

Edward Hugh has a lively and enjoyable Facebook community where he publishes frequent breaking news economics links and short updates. If you would like to receive these updates on a regular basis and join the debate please invite Edward as a friend by clicking the Facebook link at the top of the right sidebar.

Friday, January 17, 2003

US Inflation: On the Slippery Slope Down

US consumer prices barely budged in December ending a year in which costs other than energy rose by the smallest amount since 1964. Thursday's report on the Consumer Price Index merely confirmed what Alan Greenspan and many other economists have now been saying for some time: inflation isn't a problem for the American economy. In fact given the uneven nature of the economic recovery many companies have limited power to raise prices even if they wanted to. Consumer prices rose a mere 0.1 percent in December from the previous month, marking the same rate for a second month, the Labor Department reported. December's showing was a lower reading on inflation than the 0.2 percent rise many economists were forecasting. For 2002 as a whole, consumer prices rose by 2.4 percent, up from the 1.6 percent increase in 2001. Most of that pickup came from rising energy costs, including petrol, which moved higher on tensions in the Middle East and worries about supply disruptions if the United States went to war with Iraq. Excluding energy prices, consumer prices went up by just 1.8 percent in 2002. That was the smallest increase since a 1.3 percent rise in 1964, and down from a 2.8 percent increase in 2001. Here there is news to some all tastes. What some would call 'tame', others (including yours truly see as frankly preoccupying, especially when there's a 15% drop in dollar value to remember. Down deflations slipperly slope we go, and remember to watch the output gap on the way.

The generally tame inflation climate in 2002 offered some shoppers — especially those buying cars, clothes, computers and airline tickets — some good deals because prices fell for those items. But people paying energy, medical and education expenses, including tuition and books, took a hit in the wallet as those prices rose sharply. Energy prices, which can fluctuate wildly from year to year, rose by 10.7 percent in 2002, a turnaround from the 13 percent drop registered in 2001.

In the CPI report, food prices went up by 1.5 percent in 2002, the smallest increase since 1997, and down from a 2.8 percent advance in 2001. New car and truck prices fell by 2 percent last year, the biggest drop since 1971, as companies offered heavy discounting, free-financing deals and other incentives to lure buyers. Clothing prices declined 1.8 percent as retailers discounted merchandise to attract shoppers. Airline fares dropped 2.4 percent last year as companies sought to motivate would-be flyers. Computer prices plunged 22.1 percent in 2002 as the high-tech industry, hard hit by the 2001 recession, tried to get back on its feet. While the prices many goods were well-behaved last year, it was a different story for some prices in the service sector of the economy. Prices for medical care went up 5 percent in 2002, the biggest increase since 1993. Education costs, including tuition and supplies, rose 6.6 percent last year — more than two and half times the rise in overall inflation. "We do have a dichotomy. It's like a tale of two inflations," said Stuart Hoffman, chief economist at PNC Financial Services Group. "For goods, there is zilch inflation. But for services there is some. But the overall message is that inflation is still very tame."
Source: Yahoo News

No comments: