|Inflation Creep - Or Has It Become A Crawl?|
|Topic||Employment, Unemployment, and Inflation|
|Key Words||Inflation, Consumer Price Index, Federal Reserve, Monetary Policy, Productivity|
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose 0.1 percent from April to May. Although a monthly rise of 0.1 percent is considered to be a benign indicator of inflation, the May report did cause some concern among economists. For the past 12 months, the CPI has increased 3.1 percent and the average rate of increase in the last 6 months is one-half percent greater than for the preceding 6 months. Some economists feel that the inflation rate is accelerating. The CPI is expected to rise in June, led by increased gasoline prices.
The apparent cause of the increase in inflationary pressures is consumer demand. The strong economy has been buoyed by consumer spending and companies have apparently reacted by raising prices. In other inflationary episodes labor costs have initiated retail price hikes, but there is little evidence in this instance to blame labor cost increases. When labor cost increases exceed productivity gains, firms first try to pay for these increased costs by cutting profits. There is no evidence that profits have fallen.
Housing and medical care cost increases are two important reasons for the accelerating inflation rate. Housing costs have risen 2.9 percent over the past 12 months while medical costs have jumped 4 percent. The rise is hospital rates and the cost of prescription drugs are factors in the increase in medical care costs.
Gasoline prices are a volatile component of the CPI. Gasoline prices have soared in the past 12 months, although they were reported to have fallen in the April-May time frame. Aside from the direct impact on the CPI of higher gasoline prices, there is little evidence that prices in other sectors besides airline fares have risen as a result. Airline fares were up 0.8 percent in May because of higher fuel prices.
(Updated July 1, 2000)
|Source||Louis Uchitelle, "Report Shows Long-Term Inflation Is Gaining," The New York Times, June 15, 2000.|
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