CEPR - Center for Economic and Policy Research

Food and Energy Prices Cause High Inflation in April

May 15, 2007 (Prices Byte)

Food and Energy Prices Cause High Inflation in April

Prices Byte by Dean Baker

For Immediate Release: May 15, 2007

Contact: Lynn Erskine, 202-293-5380 x115

Wage growth is lagging far behind inflation.

A 0.4 percent rise in food prices, coupled with a 2.4 percent jump in energy prices, pushed the CPI up by 0.4 percent in April. This brings the annual rate of increase over the last three months to 5.7 percent, approximately 2 percentage points above the rate of wage growth over this period. The core inflation rate was just 0.2 percent, held down by falling apparel prices and slower rental inflation. The core inflation rate for the last three months has been just 1.9 percent, down slightly from its 2.3 percent rate over the last year.

Most of the anomalies in this month’s report were on the low side. Apparel prices fell 0.3 percent after dropping 1.0 percent in March. Apparel prices have dropped at a 3.3 percent annual rate over the last three months. The public transportation index, which accounts for 1.4 percent of the core index, fell by 0.4 percent, driven by a 0.9 percent drop in airfares. This will almost certainly be reversed in future months, as airlines pass on higher fuel costs. The household furnishing and operations index, which accounts for 6.0 percent of the core CPI, fell by 0.4 percent in April. Tobacco products also posted an unusual 0.4  percent decline in April.

The only obvious aberration on the high side was a 1.9 percent jump in hotel prices. This largely reversed a 2.3 percent decline reported in March.