The Price of This Household Item Is Falling
The recently released May inflation numbers were extremely high — again. Month after month, government officials, businesses, and individuals hope the upward pressure on prices — of items such as cars, housing, food, and fuel — will begin to taper off. In May, the situation got worse. The consumer price index rose 8.6% from the same month a year ago. It was the sharpest rise since December 1981.
Not all prices rose sharply. A few rose at a much slower pace than the overall CPI. But out of dozens of items in the index, the prices of only 17 fell. To find these items, 24/7 Wall St. reviewed the Bureau of Labor Statistics’ Consumer Price Index Summary May report. The largest decline was in the price of food sold at elementary and secondary schools, which fell over 40% year over year.
Similarly, the price of food sold at employee sites and other categories of schools dropped 30%. The prices of these items may have fallen because many schools and offices remain shut due to the pandemic. Smartphone prices dropped by 20%, perhaps because of price wars among carriers competing to add new 5G customers. (See if phones are among the most unreasonably priced things Americans buy.)
CPI figures have been regularly tied to several factors. One is supply chains, and mostly driven by the pandemic, key items like computer chips are on backorder for months. Among the products that require millions of these are cars. Auto inventories have collapsed, pushing up prices. (This is the most overpriced used car in America.)
CPI has also been tied to oil prices. In large part because of the embargo on Russian oil due to its invasion of Ukraine, global supply of oil has tightened considerably. This, in turn, has affected the prices of a range of products from gas, to home oil, to jet fuel.
Food costs can also impact overall consumer prices. Some food prices will eventually be affected by the lack of grain exported from Ukraine. For the time being, other large producers of meats and grains have not been able to keep pace with global demand.
Another major factor affecting prices is interest rates. The Federal Reserve has started to raise them aggressively to bring down inflation. However, this has also caused a rise in mortgage rates, which also affects the cost of housing, whether by ownership or rent.
Several economists have described the Federal Reserve as flat footed. Former Treasury Secretary and Harvard University President Larry Summers, for example, remarks regularly that if the Fed had started to raise rates last year, inflation would not have gotten out of hand.
Inflation, it now seems almost certain, will trigger a recession early next year. As products and services rise in price, the effects on consumer spending and corporate margins will be considerable.
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