Academic journal article Monthly Labor Review

Consumer Prices in 1994

Academic journal article Monthly Labor Review

Consumer Prices in 1994

Article excerpt

As measured by the Consumer Price Index for All Urban Consumers (CPI-U), inflation was moderate in 1994. The CPI-U increased by 2.7 percent, the same as in 1993, keeping inflation below the 3-percent level for 3 consecutive years. This is the first time since December 1965 the index has remained stable for such an extended period.

The CPI for all items less food and energy, often referred to as the core index, or underlying rate of inflation, increased 2.6 percent in 1994. This was its smallest annual increase since 1965, when the index rose just 1.5 percent. The deceleration in the index for all items less food and energy, which has continued since 1990, has contributed to moderate retail inflation over the past 4 years. (See table 1.)


The economy continued to expand in 1994. Consumer spending and real disposable income rose, and unemployment fell. The Federal Reserve Board maintained its goal of noninflationary price stability by raising the discount rate and Federal fund rate three times each in 1994. (The discount rate is the interest rate the Fed charges for loans to banks.(1)) The Federal Reserve Board's Open Market Committee cited increases in commodity prices and capacity utilization rates, a measure of plant stress in manufacturing, mining, and utilities. Utilization rates rose to 84.9 percent of total capacity in December, the highest since May 1989.

Despite the economy's growth, pressure on wages was modest, with private industry wages and salaries increasing only 2.8 percent in 1994. Even accounting for increases in interest rates, which alter borrowing costs and saving incentives, personal consumption increased 3.4 percent during the year. As increases in the Nation's aggregate demand continued, prices also continued to increase. However, with retail competition intensifying and wage pressures abating, prices paid by consumers did not increase. Overall, price inflation was tamed by downward pressure on wages and competition among retailers, despite the surge in the Nation's output.(2)

Food. In 1994, consumer prices for food climbed 2.9 percent for the second consecutive year, remaining less than 3 percent for the fourth consecutive year. Except for fresh vegetable prices, increases for most food categories were fairly moderate in 1994.

Tropical storm Gordon, which hit the eastern coast in November, prompted a 21.6-percent increase in prices for fresh vegetables, the second-highest increase since 1971. Lettuce prices were up 79.8 percent, its highest since 1987, when prices rose 136.9 percent. For other fresh vegetables, prices rose by 21.1 percent, attributable to excessive rain and acreage reductions in 1994.

The index for meats, poultry, fish, and eggs decreased 0.5 percent in 1994. Beef and veal prices fell 2.2 percent, its largest decline since 1976. Production for herding and slaughtering increased by 6 percent in 1994 over levels that were pushed down by weather-related problems during the previous year. In addition, profitable feed margins, an input cost to farmers and ranchers, accelerated production, helping to reverse the effects of reducing herds late in the year to limit overextended meat supplies. In the fourth quarter, prices for future contracts, a hedging device used by farmers and cattlers to guarantee specific delivery prices, remained steady in commodity trading markets with greater availability of beef and veal. On the other hand, fish and seafood prices rose 5.2 percent, reflecting tight supplies most of the year in salmon, shrimp, cod, and haddock.

A frost in Brazil was largely responsible for a 55.4-percent increase in coffee prices, a record since the index was started in 1967. Despite a drop of 0.3 percent in the index for carbonated drinks, its largest since the index began in 1978, the surge in coffee prices caused the index for nonalcoholic beverages to increase 14.7 percent. Because of increased competition between restaurants, the food-away-from-home index increased only 1. …

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