Magazine article Economic Trends

Inflation and Prices

Magazine article Economic Trends

Inflation and Prices

Article excerpt

In March, retail prices jumped but longer-term inflation trends held steady. The Consumer Price Index (CPI) rose 7.8%, following a 4.5% rise in February. The core CPI, which excludes the volatile food and energy prices, also surged ahead (4.3% at an annualized rate, its highest monthly growth rate since August 2002). However, the median CPI, which attempts to control for volatile monthly price changes by considering the center of the monthly price change distribution, increased a more moderate 2.8%.

Meanwhile, longer-term inflation trends in the various retail price measures remained stable in March. The core CPI's 12-month growth rate ticked downward from 2.4% to 2.3%. The 16% trimmed mean and the median CPI's 12-month growth rates held steady at 2.2% and 2.4%, respectively. And the CPI's 12-month growth rate only ticked upward from 3.0% to 3.1%. However, the core CPI has risen nearly 1.5%, the median CPI 0.6%, and the 16% trimmed-mean CPI about 0.7% since late 2003, when retail prices began trending upward.

The increased inflation rates are partly the result of rising core goods prices. Core service price growth has remained relatively steady for nearly two years (roughly in the 2 1/2%-3% range); however, core goods price deflation has stopped. Core goods prices have risen on a year-to-year basis since October 2004. These trends may reflect the upward pressure on import prices caused by the dollar depreciation that occurred in 2004.

Increasing pressure on retail prices may also reflect producers' attempts to recoup some of their dramatically rising energy costs. Recent crude oil prices have receded slightly but the cost of crude oil, which accounts for nearly 40% of U.S. energy consumption, has continued to rise at an alarming pace, reaching more than $50.00 a barrel for West Texas intermediate crude in April. …

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