Are Energy Prices Being Passed On?

The NYT reports that "some investors pointed to declines in the price of clothing and computers as evidence that high gasoline prices were not forcing up costs of other products." If true, this would be a basis for not having confidence in investors. Computer prices have fallen in almost every month for the last twenty years. This decline provides virtually no evidence on the extent to which energy prices are being passed on in other areas. Investors should also know that apparel prices are highly erratic so that any particular month's measure is almost meaningless. Looking to the producer price index, women's apparel has fallen in price by 0.2 percent over the last year, although it has risen at an 0.8 percent annual rate over the last quarter. Men's apparel has risen at an 0.8 percent rate over the last quarter and the last year. Footwear has risen at a 6.5 percent annual rate over the last quarter and a 2.5 percent rate over the last year. The real mystery in this report is the fact that higher inflation in the producer price index have not shown up in the consumer price index. This suggests either sharply lower profit margins or some serious measurment problems. As always you can get the story in the CEPR price byte.

--Dean Baker