Inflation’s Hot Now, But It Should Cool Off

Inflation will likely ease in coming months, but price pressures are expected to stay elevated, keeping pressure on consumers, businesses and the Federal Reserve.

Wholesale prices rose 9.8 percent in the 12 months ended in July, the fastest annual pace in 27 years, according to a recent government report.

The report showed inflation spreading into a wide range of goods outside of just energy and food.

Analysts said they expect the inflation picture to gradually improve in coming months in light of the recent drop in the price of oil and other commodities.

And a marked slowing in the global economy will make it harder for companies to pass along increased costs.

“Inflation pressures have peaked,” Ken Mayland, president of ClearView Economics, said in a note to clients.

Costs Rise

Joel Naroff of Naroff Economic Advisors notes it will take time, however, for price pressures to subside.

“It took a long time for the surge in commodity prices to seep into the general economy, so don’t expect one month of commodity price declines to suddenly turn off the inflation pump,” Naroff said.

The producer price index, a measure of prices charged for goods by factories, farmers and wholesalers before they reach the retail level, rose a seasonally adjusted 1.2 percent, according to the U.S. Department of Labor.

Energy prices were up 28 percent from a year earlier. Prices rose for electricity and natural gas, and wholesale heating oil costs were up 80.6 percent from a year earlier. Food prices were up 8.7 percent from July 2007.

But wholesale inflation was not limited to the usual culprits, suggesting high costs for energy and other crude products are seeping into the prices for a wide array of goods such as clothes, cars and jewelry.

Outside of food and energy, producer prices rose 0.7 percent in July. So-called core prices, up 3.6 percent over 12 months, posted their biggest yearly gain since 1991.

Two weeks ago, the government said prices at the consumer level rose 5.6 percent in July from a year ago, also the largest increase since 1991.

Oil prices have fallen 21 percent since peaking July 3.

Despite the declines, oil prices are still more than twice as high as they were a year ago, putting upward pressure on inflation.

Price pressures have the Federal Reserve in an uncomfortable bind. While the Fed usually raises rates to curb inflation, a slow economy has forced policymakers to sit on the sidelines.