March 29, 2017

US Prices Continue to Rise in March 2011

During March, the US economy continued an upward pattern in the prices for common goods. The consumer price index, a key indicator for adjustments in the prices of goods or inflation, rose 0.5% during March, according to statistics [.pdf] released today from the Labor Department. This marks the ninth consecutive month with an increase in the consumer price index, as well as the second consecutive month with a relatively large increase of 0.5%. Similar to January and February, energy and food prices were mostly accountable for the monthly increase.

The energy index, which includes gasoline and utility services, rose 3.5% in March. Even though the energy index has increased nine consecutive months, the last four months alone have brought a 13% increase in the energy index. This escalating trend of energy prices is particularly significant because it increases the operation costs for both consumers and producers.

For instance, the average price for a gallon of gasoline increased in eighteen of the last twenty weeks. During the week ending April 11th, a gallon of gas nationally averaged $3.84, according to the US Energy Administration. This is the greatest price for a gallon of gas since September 2008. The record price for a gallon of gas occurred in July 2008, which was an average of $4.16 per gallon. Since the beginning of October, when a gallon of gas averaged $2.78, the average price per gallon has increased 28%.

Rising gas prices are also reflected in higher production costs. The cost to produce all goods increased for the ninth consecutive month during March, according to the producer price index [.pdf]. With rising costs to produce goods, consumers can expect their buying power to continue to decline. In other words, the pattern for consumers to pay more for the same goods will likely continue so long as production costs are on the rise.

In addition to rising energy prices in March, the food index increased 0.8%. This is the greatest monthly increase in the food index since July 2008 [.pdf] or 33 months ago. Each of the six major grocery store categories increased in March, with increases varying from 0.5% for cereals and bakery goods to 1.9% for fruits and vegetables. More specifically, significant increases in potatoes, tomatoes, and lettuce contributed to a 4.7% rise in fresh vegetables during March.

Excluding food and energy prices, the consumer price index rose 0.1% in March. Airline fares rose higher than the price of any good excluding food and energy, with a 1.9% increase. This marks the seventh consecutive month with an increase in airline fares, which is most likely a result of rising energy prices. Also, prices for new vehicles increased 0.7%, used vehicles increased 0.8%, and medical care commodities increased 0.5%.

As the rising prices of many goods indicate, US consumers are slowly able to purchase less with the same amount of money. Meanwhile, the price for a barrel of oil closed above $110 today. With the absence of a foreseeable conclusion to the turmoil in Libya, elevated energy prices will likely persist. A combination of higher energy prices and production costs will likely lead to similar results for consumer prices in April.

Comments

  1. Keep up the good work. I don’t see inflation slowing down anytime soon, even after things settle down in the Middle East. Higher prices are an unavoidable consequence of Federal Reserve policies such as QE-2 and historically low interest rates. The dollar itself has no intrinsic value so as more dollars circulate it’s going to take more of them to trade for real goods/services. The price of gasoline is especially sensitive because it is traded on the dollar in the world economy. Exacerbating the problem is commodity market speculation. Many people believe gas prices will rise which leads people to invest more in it, increasing demand for commodity futures which raises the price. A classic self-fulfilling prophecy.
    The unrest in Mid East is driving a large portion of the speculation but another factor is the US Department of Energy’s refusal of all applications to drill in the Gulf of Mexico since the BP catasterfu*k. Because the US has slowed its domestic production investors wisely suspect that the world’s largest consumer of oil will be more reliant on world supplies in the future. If the reason for the DoE’s refusals for US companies to drill is from fear of another disaster then this policy is quite foolish because we don’t have sole rights to drill there. In fact, it’s international waters which means any country can harvest the oil thats out there. Couple that with the fact that most other nations have much lower safety standards and the number of foreign wells in the gulf has jumped significantly since the spill, the us policy is only going to lead to more spills.

  2. What up – Even though the Obama Administration or the Bureau of Ocean Energy Management has said it is going to reform the regulatory policies for off-shore drilling permits, it is continuing to issue permits while these changes are planned. In fact, the tenth permit for deepwater drilling since the fallout last summer was issued in early April, as the following link discusses. http://www.chron.com/disp/story.mpl/business/7514069.html

    Also, domestic oil production is actually higher than last year. The following link has the domestic oil production for each week dating back to 1983. http://www.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W

    Even though domestic production is not declining, another factor that exacerbates the energy market is a growing international demand for oil. Even though Western nations consumption levels are remaining somewhat level and actually slightly declining, the Middle East, Africa, and especially Asia are all increasing their oil consumption each year. This fact correlates to how international commodity speculation causes friction. The following link shows oil consumption by country and region for the past few years. http://www.eia.doe.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=44&pid=44&aid=2

    Though I agree the federal reserve’s qualitative easing program is certainly an influence on the consistent yet slow decline in the buying power of the dollar.

  3. Thats great news, I hadn’t heard deep-water drilling had resumed. But this is a fairly recent development. As the link below states even though the moratorium on deep-water drilling was lifted last October, a de-facto moratorium had been in place until a month and a half ago because the state department refused to issue permits.
    http://www.huffingtonpost.com/2011/03/01/us-approves-deepwater-drilling-permit-gulf-bp-spill_n_829505.html

    Shallow water drilling has been allowed to continue without ever being fulling interrupted but only at a depressed rate compared to before the spill. On the other hand, foreign countries have continued to increase their production of oil in the gulf and elsewhere as the following link mentions:
    http://www.instituteforenergyresearch.org/2010/09/30/u-s-imposes-offshore-drilling-moratorium-but-other-countries-fail-to-follow/
    If drilling in the Gulf is going to take place, why should it not be from US producers that adherer to far higher safety standards?

    It is true our domestic production has increased this year but you seem to have missed my point. Production has increased because the added production from other sources outside of the Gulf have more than offset the loss in domestic production from the Gulf. This constitutes a loss of potential domestic supply. The result of which means a heavier reliance on world oil supplies at a time, as you’ve pointed out, when world demand has lead to record higher prices.

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