Consumer Price Index, Inflation and Energy

I thought it would be interesting to take a look at the most recent consumer price index release from the Bureau of Labor Statistics to analyze where prices are increasing against what is exhibiting steadier prices and if there are any themes to be found in the analysis.

First, a look at consumer price changes over the past year divided by the fastest rising and lowest increased rates:

Fastest rising:
Fuel, Oil and other Fuels +40.2%
Gasoline +26%
Dairy and related products +11%
Transportation +8.2%
Cereals and Bakery Products +8.1%
Hospital and related services +7.9%
Public transportation +7.5%
Household Energy +6.8%
Education books and supplies +6.3%
Education +5.5%
Water/Sewer/Trash Collection +5.3%

Fastest declining:
Personal Computers -12.0%
IT Hardware and Services -5.7%
Apparel -1.4%
Household Furnishings -0.2%
New and Used Motor Vehicles -0.2%
Personal Care Products -0.1%
Tenants and household insurance +0.3%
Recreation +1.3%
Telephone Service +1.6%
Fruits and Vegetables +1.7%
Nonalcoholic Beverages +2.7%

One glance at the data and it becomes clear that one of the largest problems facing the economy today is that the prices of things that we need (gasoline, food, transportation, health care, education and utilities) are rising at very high rates while more discretionary items that we want are rising at slower rates or in some cases not at all (personal computers, new/used vehicles, recreation, household furnishings, etc.)

This is actually not uncommon at the start of a recession, however, typically we would start to see a softening in prices of even the items that we need. Clearly, energy and food prices are still increasing at very fast rates with at least part of the blame at least in terms of food related to ethanol. Thus far, inflation has been held at relatively reasonable levels (ex and this is a big ex- food and energy).

I am still anticipating a softening in prices of commodities over the near term as the amount of speculation in the markets is near or above record levels. A recent example of the speculative nature of energy markets can be seen in action on April 14 when crude was up nearly $3 despite news that Petrobras (PBR), Brazil's state owned energy company had potentially found 33 billion barrels, the largest oil discovery in 30 years. This would be the 3rd largest oil field find ever and based on reports from Bloomberg, would have enough oil to supply every U.S. refiner for 6 years.

Comments

[fodi MD.:]

Oil prices are not speculative , old large fields are declining fast including middle east. The oil crisis will be the financial sunami for USA .The premiums we pay today will look cheap next year. This will lead to a world wide recession! WE built our society arround cheap oil , now it will destroy us!

2008 Apr 22 08:15 PM