The Department of Labor February report on the Consumer Price Index (CPI) shows consumer prices rose 0.7 per cent last month. This is the fastest rise in the index since June of 2009 and would mean inflation of 8.4 percent if it continued for the rest of the year. This is not considered to be likely, however.
Three fourths of the CPI gain was because of higher gasoline prices. Prices at the pump were up 9.1 percent in February, the biggest jump in pump prices since June of 2009.
For the economy this news is not alarming. Gasoline prices are especially volatile because of unexpected surges in demand and temporary disruptions in supply lines. Both of these changes are usually accommodated by temporary price spikes that even out after a brief period of adjustment.
There had been some concern among economists that last year’s drought, which saw significant reductions in crop yields of corn, hay, and other commodities, would cause a spike in food prices.
That fear has not been realized, however, as food prices rose only .1 percent in February and zero in January. The crop losses because of the drought were apparently offset by increased production in areas not affected by the drought.
The overall outlook for consumer prices in 2013 is fairly benign. Note the chart on inflation shown above: It shows price increases were well contained over the last four years.
Much of the final tally for inflation this year will depend on how much industrial production grows from now through December. This, in turn, will depend on how much consumers in America will spend.
Consumer spending, however, faces serious constraints. High unemployment and a fiscal austerity in Washington will both operate to keep spending within non-inflationary levels. At least, that is the expectation of those who keep a close eye on the economy.
A recovered economy with full employment will open the door to potentially higher inflation. But that eventuality is not on the immediate horizon.