Rising prices may spur inflation
Rising wholesale prices for food and energy are putting pressure on manufacturers and retailers to pass higher costs to customers. It’s a trend that could raise inflation in the United States and slow economies in Asia and Latin America.
U.S. gas prices have topped $3 a gallon, and grain prices have reached a 21/2-year high. Some lawmakers say the increases illustrate the need for tighter limits on speculation in commodities markets.
Airlines, clothing manufacturers and some grocery stores already have raised retail prices. And even those companies that have resisted increases because they worry that customers can’t afford them may be more reluctant to hire because of the squeeze.
Some economists expect prices to rise faster this year than last, although not fast enough to cause policy changes at the Federal Reserve, which has the power to raise interest rates to keep inflation in check.
And though the higher prices could be a drag on consumer spending, they shouldn’t derail the overall economy, economists say.
The price of corn, soybeans, wheat and other grains has shot up since last summer as bad weather has hammered harvests in Russia, Australia and Argentina. That raises the cost of feeding livestock, and in turn raises prices for beef and poultry. Oil prices, currently at about $92 a barrel, are rising because of strong demand from fast-growing developing countries.
Wholesale prices rose 1.1 percent in December, the Labor Department said Thursday, the biggest increase in 11 months. Higher energy and food costs drove the increase. So-called core prices, which exclude those volatile categories, rose just 0.2 percent.
But the report can’t be dismissed just because most of the increase came in food and energy prices, said Joel Naroff, chief economist at Naroff Economic Advisors. “These are not products which you can do without very easily,” he said.
Last year, Americans spent about 8 percent of their money on energy, which includes natural gas, electricity, gasoline and motor oil. They spent about 13 percent on food.