Monday, 16 May 2011

US inflation is mainly, but no longer just, about energy

Energy prices continued to drive inflation in the United States in April but prices of other items are also accelerating.

On Friday, the Labor Department reported that the consumer price index increased 0.4 percent in April. Compared to a year ago, the consumer price index in April increased 3.2 percent, a rate of increase higher than that in March when it rose 2.7 percent and, indeed, the highest rate since October 2008.

Energy was the main contributor to inflation in April. Energy prices rose 2.2 percent in April from the month before.

Perhaps more significantly, however, there was an acceleration in the rate of inflation in the prices of components that are widely considered as core. Consumer prices excluding food and energy rose 0.2 percent in April, higher than the 0.1 percent increase in March. The rate of increase in consumer prices excluding food and energy in the 12 months to April was 1.3 percent, increasing for the sixth consecutive month.

The Labor Department also reported producer price data last week that also showed signs of accelerating inflation.

Producer prices rose 0.8 percent in April compared with 0.7 percent in March. Producer prices rose 6.8 percent in the 12 months to April, sharply higher than the 5.8 percent increase in the 12 months to March and the highest rate of increase since September 2008.

Energy was again the main contributor to producer price inflation in April, rising by 2.5 percent from March.

Producer prices excluding food and energy rose 0.3 percent in April, the same rate as the month before. The rate of increase in producer prices excluding food and energy in the 12 months to April was 2.1 percent, increasing for the fifth consecutive month.

A third report from the Labor Department last week also showed signs of accelerating inflation.

Its report on import and export prices showed that import prices rose 2.2 percent in April. This followed a rise of 2.6 percent in March and marks the first time import prices have increased by more than two percent in consecutive months since June 2008. The latest increase means that import prices are 11.1 percent higher than one year ago.

Again, energy was the main source of higher prices. Fuel import prices rose 6.7 percent in April, accounting for approximately 80 percent of the overall increase in import prices.

However, nonfuel import prices also showed a substantial rise of 0.6 percent in April. Prices for nonfuel imports recorded a second consecutive 12-month increase of 4.3 percent in April, the largest year-over-year increase since October 2008.

Imports may have been a source of disinflationary pressure in the US for much of the past 20 years or so but that is no longer the case now.

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