•Press Release
March 16, 2007 (Prices Byte)
Prices Byte by Dean Baker
For Immediate Release: March 16, 2007
Contact: Lynn Erskine, 202-293-5380 x115
The rapid rise in food prices may be permanent.
The CPI rose by 0.4 percent in February, driven by large jumps in food and energy prices. The February jump brought the annual rate of inflation over the last three months to 4.0 percent, up from 2.4 percent over the last year. The core (excluding food and energy) index rose by 0.2 percent. The annual rate of inflation in the core has been 2.6 percent over the last quarter, almost identical to the 2.7 percent rate over the last year.
While the core index usually gets the most attention, it is worth noting that the recent increases in food prices may stick, rather than just being a random fluctuation. Food prices have risen at a 5.9 percent annual rate over the last quarter and 3.1 percent rate over the year. The producer price indexes also show rapid increases in food prices. The foods component of the finished goods index has risen by more than 1.0 percent in each of the last three months and is up 6.8 percent over the year. The annual rates of inflation over the last three months in the food components of the intermediate and crude goods indexes have been 26.8 percent and 44.6 percent, respectively. The increasing use of corn for ethanol, as well as increased export volume, could lead to permanently higher food prices.
The two major components driving the rise in the core index were apparel and medical care, both of which rose by 0.5 percent in February. The rise in apparel prices is somewhat of an anomaly. Apparel prices clearly will not continue to rise at such a rapid rate, however, they may now be on an upward path. After falling consistently for almost a decade, apparel prices now stand 2.1 percent above their year ago level. With most of the gains from cheaper imports and discount retailers having been realized, there may be little opportunity for further reductions in apparel prices, especially if the dollar falls in value.
