July 16, 2008 (Prices Byte)
By Dean Baker
"Non-oil import prices rose at a 12.1 percent annual rate over the last quarter."
The June price data provided more evidence that inflation continues to inch upward driven, by higher oil and import prices. The overall CPI rose by 1.1 percent, while the core CPI increased 0.3. Over the last quarter, the overall CPI has risen at a 7.9 percent annual rate, up from a 5.0 percent rate over the last year. The core CPI has risen at a 2.5 percent rate for the quarter, almost identical to its 2.4 percent rate over the last year.
A 6.6 percent jump in energy prices was the big factor pushing inflation in June, although food prices rose by 0.8 percent. Food prices have risen at an 8.5 percent annual rate over the last quarter and a 5.3 percent rate over the last year.
Core inflation continues to be relatively well contained. Medical care costs are perhaps the biggest surprise, rising at just a 2.1 percent annual rate over the last quarter. However, new car prices have fallen at 0.1 percent annual rate over this period and apparel prices have risen at just a 1.0 percent annual rate, both numbers that seem inconsistent with the rise in wholesale and import prices.
Inflationary pressures continue to build at earlier stages of production. The overall finished goods index jumped 1.8 percent in June driven by a 6.0 percent rise in energy prices and a 1.5 percent increase in food prices. The finished goods index has risen at a 14.1 percent annual rate over the last quarter, up from a 9.2 percent rate over the last year.
Inflation in the core finished goods index is more contained, but even this is accelerating. The core index rose 0.2 percent in June, while the core finished consumer goods index rose 0.3 percent. Over the last quarter, the core finished consumer goods index has risen at a 4.3 percent annual rate, up from a 3.4 percent rate over the last year.
The situation is even worse at earlier stages. The overall intermediate goods index rose by 2.1 percent in June, while the core index rose 1.3 percent. The overall intermediate goods index has risen at a 26.8 percent annual rate over the last quarter, up from a 14.5 percent rate over the last year. The core index has risen at a 19.3 percent rate over the quarter compared to an 8.4 percent rate over the last year. The overall crude goods index rose by 3.7 percent in June, while the core index fell 0.5 percent. Over the quarter, the overall crude goods index has risen at a 70.1 percent annual rate, while the core index has risen at 63.4 percent rate.
Higher commodity and import prices continue to be at the center of the inflation picture. Non-oil import prices are up 7.3 percent from June 2007 to June 2008. Over the last three months they have been rising at a 12.1 percent annual rate. Import prices are rising from almost everywhere. Prices of imports from China have risen at a 6.8 percent annual rate over the quarter. This is a huge contrast to earlier in the decade when these prices were stable or falling.
It is clear that inflationary pressures are building in the economy due to rising commodity prices and higher import prices more generally. While these increases have not for the most part been passed on at the retail level, it is inevitable that they will be at some point. Car dealers and other retailers cannot continue to absorb rising costs at the wholesale level and not pass some of these increases on to consumers.
While the 5.0 percent year-over-year rise in the overall CPI is striking, it is driven entirely by higher food and energy prices. It is likely that at least some of this will be reversed in the months ahead, assuming that food and energy prices fall back at least partially to lower levels. However, there will be more inflation showing up in the core index as the higher price for imports and commodity inputs gets at least partially passed through to consumers.
Dean Baker is co-director of Center for Economic and Policy Research in Washington, DC. CEPR's Prices Byte is published each month upon release of the Bureau of Labor Statistics' reports on the consumer price and the producer price indexes. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102, or morgavan [at] cepr [dot] net.