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Aug. 14, 2008 By Linda Loyd Oil pumps inflation up in July, but just wait The higher-than-expected jump in U.S. consumer prices in July can be summed up in a word: oil. Inflation in July rose 5.6 percent over the last 12 months, the largest annual gain since 1991. From June to July, the rate rose 0.8 percent, twice as fast as economists were expecting. But with energy prices now retreating, July's increase in the Consumer Price Index is history, a one-month snapshot and not necessarily a trend. With oil prices heading down in the last few weeks, experts say the next monthly CPI report, for August, will be interesting. In other words, prices may ease up this month for the same reason they rose last month: oil. Here's how a few economists addressed the key points about prices: What drove the higher-than-expected July CPI number? Gasoline, food, clothing and communications - your telephone and cable bills. Tobacco prices have been soaring. Transportation costs - public transit, trains and airplane tickets - mostly because of energy. - Joel Naroff, Commerce Bank and Naroff Economic Advisors This one-month number is largely driven by energy, by oil. We already know that energy prices have receded. This number is not all that worrisome to me. CPI is released monthly; energy prices are every day. - David Shaffer, finance department chairman, Villanova School of Business What is the Fed and Chairman Ben S. Bernanke likely to do? I think they will do nothing based on this number. This is a July number. The Fed does not make policy by looking through the rearview mirror. Analysts are already looking at August and beyond. We all know that oil peaked in July. But oil has been dropping since. The August number is going to be interesting, not so much the July number. - David Shaffer While these inflationary pressures are broad-based and of concern, the economy is even softer. Right now, the Fed is likely to continue to focus on the weak economy by keeping rates stable, not lowering rates but not raising them either, possibly all through this year. - Joel Naroff How will the stock market react? The market is likely to discount the CPI report with hopes that future reports will be better because of the declines in energy. The market is focusing on oil and is therefore able to discount the CPI. - Joel Naroff
Villanova School of Business 2008 Media Report