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Inflation Is Here to Stay, Local Expert Says

Jeff Grange of Crowell, Weedon & Co. describes a disconnect between economists and consumers on the effects of rising food and gas prices

U.S. import prices rose again in March, and experts are predicting a rise in the Producer Price Index and Consumer Price Index when they are unveiled this week.

Import prices are up 2.7 percent, according to the Bureau of Labor Statistics. It is the largest jump since it rose by the same rate in June 2009. Prices excluding fuel rose 0.6 percent.

The rising price of imports correlate to the U.S. dollar weakening as entities such as the European Central Bank and China raise interest rates, said Jeff Grange, a financial advisor with Crowell, Weeden & Co.

“By the U.S. saying we’re going to keep interest rates low for an extended period of time, the dollar will fall, which certainly hurts when we buy abroad but makes it easier for companies to sell products abroad,” he said.

Imported fuel jumped 9 percent, the largest monthly rise since a 16 percent hike in June 2009. With the national average for a gallon of gas rising 25 percent in a month to $3.78, according to GasBuddy.com, the upward trend of the CPI and PPI is likely to continue. There was a 1.6 percent gain in February’s PPI, driven by higher food and fuel costs.

“Prices at the gas pump and food prices are so volatile that most economists don’t take those into core inflation,” Grange said, “but to common consumers we don’t get to choose, we have to eat and buy gas, and that can impact consumer spending on a discretionary level.”

Retail food prices rose 4.2 percent, the largest advance since July 1994. Wholesale food prices rose 3.9 percent in February, which have been on the rise since October 2009, and retail prices have been up since December 2009.

March’s PPI will be released Thursday, and the CPI will be released Friday, which showed a half-percent gain in February on top of a 0.4 percent hike in January.

“Inflation for the consumer is here and will continue to stay here,” Grange said, “but for the Fed who takes out the cost of food and energy, they are still more concerned about deflation and are not likely to raise interest rates for the near term.”

But he said a little inflation might benefit the housing market.

“A little inflation is healthy, and if the dollar continues to depreciate it may bring more people into the housing market to buy homes,” Grange said.

Shoppers are spending more money on electronics, furniture and apparel, according to the Commerce Department. Excluding volatile categories such as autos, gas and building materials, retailers posted a 0.4 percent gain in March compared with the previous month.

“The consumers are feeling better about the overall economy and are starting to spend,” Grange said. “They are being more realistic but starting to open up their pocketbooks.”

But that increase was the smallest this year. Sales at gas stations jumped 2.6 percent, one of the biggest spikes of any category. Spending on cars and at online retailers and department stores all declined.

Noozhawk staff writer Alex Kacik can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Become a fan of Noozhawk on Facebook.

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