Friday, August 19, 2011

Price Increases

A quick look at the news is enough to get anyone depressed.  Now there's one more item to worry about: price increases.

As we noted yesterday, the Consumer Price Index, which measures the price of basic necessities like food, clothing and gas, rose .5% in July, a higher than expected number.  That price hike was largely driven by an increase in gas prices, which rose 4.7%.

However, gas is far from the only item rising.  Fresh fruits & vegetables rose 6.9% compared to the same time last year, its highest increase in three years.  Cotton prices have jumped between 10-15%, causing higher prices on clothing.

Of course, this is all at the same time that unemployment remains high and the housing market remains stuck.

Inflation, however, does not appear to be an immediate concern.  The core-CPI, which removes some of the volatility from this measure, remains at 1.8%, and below 2% is enough to stave off serious inflation.

1 comment:

Jon Geeting said...

I would imagine that the increases in food and clothing prices are caused by the higher gas prices.

The key thing to understand is the difference between price increases caused by regular supply and demand, and price increases caused by true inflation - an economy that has reached its capacity to produce and is overheating.

We are not seeing any inflation in *wages* so the higher prices aren't the result of the dread wage-price spiral. Really, it would be a lot better for job growth if the Fed set a higher inflation target in the 4-5% range where it was during Ronald Reagan's presidency.

The biggest problem, as Kamran Afshar says, remains weak demand. The federal government can improve growth by running a higher short-term deficit"