By Mark Huffman
ConsumerAffairs.com
February 20, 2009
The economy is showing signs of inflation at both the wholesale and consumer levels, taking many economists by surprise. However, it remains to be seen if rising prices pose a threat to consumers, already struggling to cope with a difficult economy.
The Labor Department's Producer Price Index, a measure of prices at the producer, or wholesale level, jumped a surprising 0.8 percent in January. However, that's not as ominous as it sounds. Much of that increase can be traced to the price of gasoline, which has been steadily climbing since the beginning of the year.
Energy prices surged 3.7 percent during the month, with gasoline prices up a staggering 15 percent. But again, the numbers may not be as scary as they appear. The price of fuel had fallen sharply in the months leading up to the end of the year. Prices now are about a third less than they were at this point in 2008.
While gasoline prices were higher, food prices were moving in the opposite direction. Down for the second straight month, the 0.4 percent decline in January reflected lower costs for beef and dairy products. The price of poultry and vegetables was up, but not by much.
The government also reports the Consumer Price Index, a measure of inflation at the retail level, rose by 0.3 percent in January, the largest one month rise since July. However, inflation for the last 12 months amounts to zero, the lowest since 1955.
Core inflation, which excludes energy and food, increased just 0.2 percent, a bit higher than the 0.1 percent gain economists expected.
Though economists generally concede that inflation could be a problem when the economy begins to rebound, and the effects of government deficit spending is fully felt. But that threat appears to be months, if not years, away. For now, the worry is about further declines in the economy.
Federal Reserve Chairman Ben Bernanke says he sees little risk that the Fed's efforts to fight the recession and a severe financial crisis would trigger inflation pressures. Once inflation does rear its ugly head, he says the Fed will react quickly before it becomes a problem.
