1:17pm

Tue August 19, 2014
Business

To Fight Inflation, Forget The Barbecue And Just Go For A Drive

Originally published on Tue August 19, 2014 2:17 pm

If you're on a tight budget, here's a plan for enjoying late summer:

1) Take the family for a sightseeing drive.

2) When you get home, have a beer.

Don't do this:

1) Invite neighbors over for grilled steaks.

2) Make milkshakes for the kids.

Such budget-savvy conclusions can be drawn from the inflation report released Tuesday by the Labor Department.

Its Consumer Price Index (CPI) shows that over the past 12 months, the prices you have been paying have risen 2 percent — a pace that Federal Reserve policymakers have said is just right for a healing economy. In July, the overall inflation rise was just 0.1 percent.

But within that Goldilocks report, economists found some prices that are running too hot.

Most spikes involve food-at-home prices, which have risen 2.7 percent over the past year, or 0.4 percent in just July. The biggest jumps are for meat, poultry, fish and eggs, up 7.6 percent over last year. And dairy products are 4.3 percent higher.

Grocery price hikes are painful for many shoppers because wages generally have stagnated. Over the past year, average hourly earnings are up 2 percent — just enough to keep pace with inflation overall, but not enough to match the fast-rising cost of putting a good meal on the table.

For the most part, the problem has been the weather. The yearslong drought in Texas and California has forced cattlemen to dramatically cut the size of herds. And a porcine virus has been killing millions of piglets.

So beef and pork prices have been shooting up, prompting many consumers to seek out alternatives. But now the increased demand for "white meat" has driven up prices for chicken and fish as well.

"The rise of food prices makes it more difficult for many Americans households — especially those households that live paycheck to paycheck," Chris Christopher, a consumer economist with IHS Global Insight, wrote in an assessment.

But there's good price news, too: At least the gas it takes to drive to the grocery store is cheaper. The government's gasoline index fell 0.3 percent in July. The price of electricity fell, too — a blessing during peak air conditioning season.

In fact, everything in the energy category has gotten better for consumers. For example, natural gas was down 0.4 percent, its third decline in a row.

Other categories that showed price declines include: video rentals, air fares, used cars, home furnishings and beer. Overall, prices in July reflected the weakest growth rate since February.

That will make it easier for the Federal Reserve to continue to hold down interest rates. The Fed wants those low rates to help Americans buy more homes and cars, which in turn would help create jobs. But if the economy were to start showing signs of across-the-board inflationary pressures, then the Fed would have to raise interest rates to cool things down.

The July CPI data suggested to many economists that the overheating scenario won't be a threat for a long while.

"The Fed isn't going to worry much about inflation until the CPI approaches 2.5 percent," Diane Swonk, chief economist for Mesirow Financial, said in her assessment.

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