Slide Show >>High gasoline prices provoke so much grumbling that sometimes consumers forget other prices can creep up as well. With the summer driving season over and with, perhaps, a slight lull in Mideast tension, gas prices look to be on the wane. And as pressure eases at the pump, consumers might just begin to realize that prices for other goods are climbing.
In one important macro indication that inflation is on the march, the Bureau of Economic Analysis reported that the Personal Consumption Expenditures price index climbed 0.3% in July, up from a smaller jump of 0.1% in June. More bluntly, there has been a "pretty broad-based rise in prices," says Steven Ricchiuto, U.S. economist with ABN Amro (ABN). But economists are divided about the cause—and who benefits.
Inflation "is a two-edged sword," says Standard & Poor's chief economist David Wyss. "It's not clear where the average consumer comes out." People dependent on fixed incomes tend to suffer as the price of essentials rises, but it serves the interests of workers, whose salaries will rise with the tide.
"RED FLAG." Steven Wieting, U.S. economist with Citigroup (C), cites the benefits of declining gas prices as outweighing minor inflation that might occur elsewhere. In the past few years, he says, energy price jumps have so far exceeded inflation in other areas that when they recede consumers will likely benefit, even though other sectors probably will see a few upticks. Gas prices, he says, have seen a "nice unwind," with standard unleaded deflating from more than $3 per gallon at the beginning of August to a projected $2.40 by the end of September.
Few other day-to-day purchases hit people as hard. "I think gasoline has been the red flag," Wieting says. "Where else in the economy do you see price signs everywhere?"
Wyss is less encouraged by the decline in gas, saying the still-elevated cost hits less-affluent consumers. While labor-market tightness can cause wage inflation, Wyss says Americans are more likely to see inflation inspired by a dollar declining against other major currencies. The U.S. has a "$800-and-something billion trade deficit," he says. "That's a lot of money." Though if, as he predicts, the dollar remains low against the euro, "you're going to be more affected if you're wearing Givenchy than if you're shopping at Wal-Mart (WMT)."
COFFEE JITTERS. Independent of macro economic data, each sector is susceptible to unique variables that can affect prices. To take one recent example, instant- and gourmet-coffee drinkers could see a price increase for their morning fix amid growing demand for Arabica beans, used in gourmet coffees, as well as their robusta counterparts often found in instant java. The price jumps could last several months, but according to Alaron analyst Boyd Cruel, they will be "nothing out of the ordinary."
Small price increases don't seem like a big deal until they start hitting a broad spectrum of consumer goods. The accompanying slide show sizes up the outlook for price increases for eight products and services that range from essential to extravagant.
Click here for the slide show