Prices Byte by Dean Baker

For Immediate Release: February 20, 2008
Contact: Alan Barber, (202) 293-5380 x115

“Higher inflation is the cost of the high dollar policy of the last decade." The overall consumer price index rose by 0.4 percent for the second straight month in January, pushed up by 0.7 percent increases in both food and energy prices. The January increase brings the annual rate of inflation in the CPI over the last three months to 6.8 percent. Over the last year, prices have risen by 4.3 percent. Core inflation also edged higher at 0.3 percent in January. The core CPI has risen at a 3.1 percent annual rate over the last quarter, up from a 2.5 percent rate for the last year.

Two of the factors pushing inflation higher were 0.4 percent increases in both apparel prices and prices for the “other goods and services” category. Apparel prices have now risen at a 4.6 percent annual rate for the last quarter after having declined consistently for more than a decade. Some of this increase is due to the erratic seasonality of apparel prices and will be reversed in future months. However, much of the increase is due to rising import prices, which are in turn driven by the falling dollar and inflation in China.

The price increase for the other goods and services category was driven primarily by a 1.1 percent rise in tobacco prices. This increase was likely due to taxes put in place at the beginning of the year and is therefore a one-time price rise. Medical care costs continue to be a problem, rising 0.5 percent in January. They have now risen at a 5.1 percent annual rate for the last quarter, up from a 4.9 percent rate for the last year.

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