By Anika Anand, New York City News Service
Inflation slightly increased in January, mainly due to rising gasoline prices, the Labor Department reported Friday.
Gas prices increased in January and the average price for a gallon of gas in the U.S. rose almost 12 cents in the past three weeks to about $3.51, according to the Lundberg Survey Inc.
These prices will likely continue to increase due to escalating tensions between the U.S. and Iran over nuclear weapons and the potential threat of war between Iran and Israel, said economist Mike Englund with Action Economics!
Iran, which is the world’s fifth-largest oil producer, recently threatened that it would block the Strait of Hormuz, which is the gateway to Persian Gulf oil.
The .2 percent increase in overall inflation was lower than most economists forecasted. But a closer look at what items were more expensive to purchase may point to a steadily increasing consumer price index in months to come, economists said.
Housing, food, energy and medical care commodities and services are some of the most heavily weighted goods and services that contribute to the overall rise of inflation. All of these factors increased in January, and the overall price of goods and services has climbed 2.9 percent over the past year.
“What we’re seeing, really, is a very broad based and I think insidious march higher of the general price level,” said Dr. Ken Mayland, an economist with ClearView Economics.
Other factors will also contribute to the future rise of inflation, Englund said. First, based on world trade indicators for crude oil, there will be a general increase in oil prices through February and into March. Another reason to bet on rising inflation in coming months is because food and energy usually hit their highest level in July, Englund added.
But even without factoring in food and energy prices, which some economists exclude from consideration because of their volatility, there isn’t any solid indication that overall inflation has hit its peak, Mayland said.
This core inflation number, what inflation would be if food and energy weren’t accounted for, is now up to 2.3 percent– the highest it’s been since September 2008.
The Federal Reserve has set an annual inflation target of 2 percent, but Englund said he’s doubtful that will happen. He also said he doesn’t think there’s anything the Fed can do in terms of quantitive easing (printing more money) or changing the interest rate policy, because investors and entrepreneurs just aren’t willing to take a risk in the current economic cycle.
The price of wholesale goods rose .1 percent in January, according to the Producer Price Index report released Thursday. The energy goods index fell .5 percent, which may have contributed to the consumer price index’s energy decline. This slight increase doesn’t necessarily mean that businesses will charge consumers more.
Energy prices have risen by 6.1 percent over the last year and the price of food has risen 4.4 percent over the last year.