July Prices: Rising and Falling
August 19, 2008 by admin · Leave a Comment
Headlines everywhere are focused on the inflation, or rising prices, which we are all experiencing right now. However, not everything is going up. Here is a list of what is rising, what is falling, and what it all means.
RISING:
Wholesale prices rose so much in July that they broke the record for “fastest pace of inflation” for the past 27 years. The rise of 1.2 percent (reported by the Labor Department on Tuesday (Aug 19) was due for the most part to the rising costs for motor vehicles, energy and core materials for manufacture and production. Although economists expected prices to rise, they had projected only a 0.5 percent increase.
If we exclude food and energy prices from the calculation, then we are left with “Core Prices.” Core prices rose 0.7 percent, which only beat the record since November 2006. Still, it was a significant surprise to economists who had forecast a minor 0.2 percent increase.
Consumer prices also rose significantly this July, the most in 17 years. The 0.8 percent increase was also due in large part to the record surge of crude oil prices.
FALLING:
Crude oil prices have actually begun to fall by more than $30/barrel since they reached their peak price in July of $147.27. The hope is that now that energy prices are falling again and the dollar is strengthening, prices should stabilize over the next few months.
The housing slump is not showing any real improvement in most parts of the country, meaning that housing prices are way down. In fact, MDA DataQuick reported on Aug 18th that July saw the most house sales in San Diego county in more than a year. The median price was down $6000 from June and 25.6 percent ($125,000) down from July 2007. This was the biggest year-to-year drop for the 20 years that DataQuick has been tracking the market.
Unfortunately for contractors, low real estate prices and the high costs of building materials have led to a plunge in housing construction. The Commerce Department reported new construction at the lowest pace since 1991.
WHAT IT MEANS:
When energy prices were going up, it took a little while for it to effect the consumer in places other than the gas station. The same is true on the way down. Manufacturers and wholesalers need to see that they are able to turn a profit even with high production costs – once they see those costs drop, it might take a month or so for those savings to reach the consumer. Experts project that by fall we should see a drop in, or at least a slowing of, inflation.
Let’s hope that economists are underestimating again and that inflation slows three times faster than they are projecting – we could all use lower prices sooner!