Deeper

JACKSON HOLE, Wyo. -- The

consumer price index

was

rising at a 1.7% year-on-year rate as of last month.

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Lest the real-world meaning of this fact be lost on anyone, think of it this way: Consumers are now paying $10,170 for a

basket of goods and services that cost $10,000 a year ago.

Now consider these other facts.

The consumer price index for transportation, which accounts for 16.999% of the total CPI, was falling at a 1.6% year-on-year rate as of last month.

The consumer price index for apparel, which accounts for 4.831% of the total CPI, was falling at a 1.5% year-on-year rate as of last month.

The consumer price index for education and communication, which accounts for 5.478% of the total CPI, was rising at a 1.0% year-on-year rate as of last month.

The consumer price index for recreation, which accounts for 6.120% of the total CPI, was rising at a 1.4% year-on-year rate as of last month.

The consumer price index for food and beverages, which accounts for 16.408% of the total CPI, was rising at a 2.2% year-on-year rate as of last month.

The consumer price index for housing, which accounts for 39.828% of the total CPI, was rising at a 2.2% year-on-year rate as of last month.

The consumer price index for medical care, which accounts for 5.713% of the total CPI, was rising at a 3.6% year-on-year rate as of last month.

The consumer price index for all other goods and services, which accounts for 4.624% of the total CPI, was rising at a 10.4% year-on-year rate as of last month.

This means that roughly two-thirds of that basket of goods and services (food and beverages, housing, medical care and all other goods and services sum to 66.573%) is working to drag the inflation rate up, while the other third of the basket (transport, apparel, education and communication and recreation sum to 33.428%) is working to drag it down.

Now consider these other facts.

The year-on-year decrease in the transportation index owes solely to gasoline. The used cars and trucks index shows a 1.7% increase over the past year, and the new cars and trucks index shows no change. The gasoline index shows a 13.1% decrease.

The tame increase in the education and communication index owes solely to communication. The education index is rising at a 4.7% rate. But, owing to a 2.7% year-on-year decrease in the information processing equipment index and a 36.6% year-on-year decrease in the computers and peripheral equipment index, the communication index is falling at a 2.3% rate.

Now consider these two other facts.

Commodities account for 42.109% of the CPI, and services account for the other 57.891%. The former index is rising at a 0.6% year-on-year rate, while the latter is rising at a 2.5% rate.

The energy index, which accounts for 6.294% of the CPI, is falling at a 7.4% rate. Excluding energy, the total CPI is rising at a 2.3% rate and the services index is rising at a 2.8% rate.

Now the thoughts and the analysis, which begin with this statement: Judging by the amount of violent mail your correspondent receives following any column in which the word "prices" or "inflation" appears, today's topic is every bit as controversial as Internet share prices.

Your correspondent is not forecasting, stating, suggesting, implying or intimating that the U.S. inflation rate is screaming toward 5%. He does, however, label any call for a 3% figure by the end of the year (vs. 1.7% now) sane and reasonable.

Your correspondent does know that, yes, lots of things sure are cheap these days -- and he would know it even if scores of people weren't writing every week to remind him. Further, he is frequently charged with "loving" inflation and "having it in" for lower prices; he hopes that the ridiculous nature of these accusations speaks for itself, but if it doesn't, then please consider this: Your narrator positively loves televisions -- so much so that he currently owns five of them, all of which he can see from where he sits right now. Moreover, he stands ready to add a sixth the minute the price of that 36-inch Sony FD Trinitron Wega (Model Number KV-36XBR200) comes down just a bit more -- and the fact that it surely will makes him very happy indeed.

Your correspondent does know that, yes, the CPI is hardly a perfect measure of price changes. But those taking the time to report that their favorite box of pink wine most certainly did not rise in price last month like the CPI says it did -- and trust me, people absolutely looove making comparisons like that -- are missing the point in a big, big way. It's not the specificity we care about here; it's the trends -- and that's why we look to other inflation measures to either accept or reject what the CPI is saying about them. The price index for gross domestic purchases, for example, which measures everything Americans buy (including imports), put in a bottom a year ago, when it fell 0.2% during the first quarter of 1998. Then it went on to rise 0.4% during the second quarter, 0.7% during the third and 0.9% during the fourth. Similarly, the change in the chain-type price index for personal consumption expenditures registered nil during the first quarter of 1998; then the index rose 0.9% during the second quarter, 1.0% during the third and 1.2% during the fourth. The message here, then, is once again as clear as an azure sky of deepest summer: The overall level of prices in this country is rising.

Finally, consider these facts.

Growth in world gross domestic product fell to 1.8% last year from 3.2% in 1997. Why? Mostly because growth in the Asian crisis countries plunged to 0.1% from 8.0%. This produced a crash in demand for commodities...

... and prices crashed accordingly. Oil prices plummeted 36.5% last year. That produced a 15.4% decrease in gasoline prices -- which in turn produced an 8.8% decrease in energy prices. The commodities crash also helped produce a 6.0% decrease in import prices and a 31.3% decrease in computer prices (and yes, your correspondent also knows that computer prices were falling at rates as big as 22.6% even before the Asian crisis hit). The dollar, meanwhile, surged 7.4%.

The point of this column is to lay out CPI trends in a way that shows exactly how an exceptionally favorable set of circumstances ended up suffocating the inflation rate last year -- and to point out that it's extremely risky to bank on the same degree of help again this year.

Merely this and nothing more.

Good weekend!!

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