Consumers soon may have to pay more for food, clothing and other products because of the rising costs of raw materials and fuel for transportation.
“There’s been such a large increase over last month in PPI (Producer Price Index) that everyone has boosted expectation of inflation in times ahead,” said Dr. Peter Rupert, a UCSB economics professor.
The consumer price index rose 0.5 percent in February, the most since mid-2009, which can be traced to surging food and gasoline prices. Core inflation, which excludes food and energy costs, rose 0.2 percent, though that still exceeded estimates.
“It’s hard to say how long these things take to go through the pipeline as far as the effect of rising raw materials cost trickling to consumers,” Rupert said. “What we’ve seen lately is swings in raw materials energy — those things are going to lead to an increase in inflation — but on the other hand, most people think the high unemployment is going to work to subdue CPI inflation.”
Increased commodity prices will force retailers to pass on some of the costs to consumers, said Jim Haslem, principal at consulting group Huntley, Mullaney, Spargo & Sullivan Inc.
“Inflation will result in higher prices that will likely be passed on to consumers, but what happens when they don’t buy the product?” he said, adding that retailers might find themselves getting squeezed.
The national average for a gallon of gasoline hit $3.70 Wednesday, the highest price ever for this time of year, according to GasBuddy.com.
The price of food has been hit hard as well. Corn has traded at more than $7 a bushel this month, more than double last summer’s $3.50, and many traders say it could pass the record $7.65 set in 2008.
These factors have had an effect on the Consumer Confidence Index, which fell more than expected to 63.4 from 72.0 in February; a reading of 90 indicates a healthy economy. The index hasn’t approached that level since the recession began in December 2007.
But there are positive trends in unemployment. The government’s February jobs report showed companies added more workers than in any month in almost a year as unemployment dropped to 8.9 percent, the lowest in almost two years.