May 14, 2008 (Prices Byte)
By Dean Baker
"Since January, medical care costs have risen at a 1.2 percent rate, while jobs have grown at a 3.1 percent rate."
Retail inflation remained mild in April as the overall CPI increased by 0.2 percent, while core inflation rose by just 0.1 percent. The annual rate over the last three months in the overall CPI has been 2.3 percent, down from 3.9 percent over the last year. The annual rate in the core has been just 1.2 percent over the last three months, down from a 2.3 percent rate over the last year.
The overall inflation rate was held in check by flat energy prices in April, although the annual rate of increase over the last quarter was still 5.9 percent. Food prices rose by 0.9 percent in April, bringing their rate of increase over the last quarter to 6.3 percent, up from 5.1 percent over the last year.
Several factors helped to keep the core rate down. New car prices fell by 0.2 percent in April bringing their rate of decline over the quarter to 2.4 percent. This is striking because car prices in the finished goods index rose at a 3.6 percent annual rate from December to March. This suggests a serious squeeze on dealers’ profits.
Inflation in medical care prices has also slowed markedly, with prices up 0.2 percent in April. They have risen at just a 1.6 percent annual rate over the quarter. This is difficult to reconcile with employment in the health care sector, which is rising at a 3.1 percent annual rate.
The glut of housing has kept rents under control. Owners’ equivalent rent rose by 0.2 percent in April, bringing its annual inflation rate to 2.3 percent for the quarter. Hotel prices plunged again, dropping 1.9 percent. This brings their annual rate of price decline to 13.5 percent for the quarter. This price decline has slashed almost half a percentage point from the core inflation rate over the last three months.
The producer price data for April will not be released until next week, but the import-export price data suggest that substantial price pressure continues to be present at earlier stages of production. Overall import prices rose by 1.8 percent in April, driven by a 4.4 percent jump in oil prices. However, even non-oil import prices rose by 1.1 percent. Over the last quarter, import prices have risen at a 21.3 percent annual rate, up from a 15.4 percent increase over the last year. Non-oil imports have risen at an 11.8 percent annual rate over the quarter, compared to a 6.2 percent rate over the last year.
Import prices are now rising from almost all countries and in almost every category. The price of imports of manufactured goods has risen at an 11.2 percent rate over the last quarter, compared to a 7.4 percent rate over the last year. Prices of imports from the EU have risen at a 15.0 percent rate over the last quarter, up from an 8.3 percent rate over the last year. The price of imports from China has risen at a 3.6 percent rate over the quarter, down slightly from a 4.1 percent rate over the last year.
Export prices also show evidence of rising inflation. Export prices overall rose by just 0.3 percent in April, but this was held down by a 2.2 percent plunge in the price of agricultural exports. The price of non-agricultural exports rose 0.6 percent in April. They have risen at a 10.3 percent rate over the last quarter, up from a 5.6 percent rate over the last year. Overall export prices have risen at an 11.8 percent rate over the quarter, up from a 7.7 percent rate over the last year.
It is striking that inflation at earlier stages of production does not appear to be showing up in the consumer price index, especially at a time when productivity growth has slowed markedly. This suggests either measurement anomalies or profit squeezes at the retail level, most notably with hotels, medical care and new cars. In either case, it seems virtually certain that these components (which comprise 17.5 percent of the core index) will show higher inflation in future months.
Dean Baker is co-director of Center for Economic and Policy Research in Washington, DC. CEPR's Prices Byte is published each month upon release of the Bureau of Labor Statistics' reports on the consumer price and the producer price indexes. For more information or to subscribe by fax or email contact CEPR at 202-293-5380 ext. 102, or morgavan [at] cepr [dot] net.