Tag Archives: economists

The Rest Of The Story On Inflation

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On Friday, the Associated Press posted an article about the current state of inflation.

The article reports:

WASHINGTON (AP) — Wholesale prices in the United States rose by a larger-than-expected 2.6% last month from a year earlier, a sign that some inflation pressures remain high.

The increase, the sharpest year-over-year increase since March 2023, comes at a time when other price indicators are showing that inflation has continued to ease.

The Labor Department said Friday that its producer price index — which tracks inflation before it reaches consumers — rose 0.2% from May to June after being unchanged the month before. Excluding food and energy prices, which tend to bounce around from month to month, so-called core wholesale prices increased 0.4% from May and 3% from June 2023.

The increase in wholesale inflation last month was driven by a sizable 0.6% rise in services prices, led by higher profit margins for machinery and auto wholesalers.

By contrast, the overall prices of goods fell 0.5%. Gasoline prices tumbled 5.8% at the wholesale level. Food prices also dropped.

The producer price index can provide an early sign of where consumer inflation is headed. Economists also watch it because some of its components, notably healthcare and financial services, flow into the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures, or PCE, index.

Most of the media reported that inflation was slowing based on the producer price index. That number was used to fuel speculation of a federal reserve rate decrease by the end of the year. That likely caused the bump in the stock market yesterday. It’s nice to celebrate a drop in food as fuel prices, but where are they in comparison to where they were four years ago? The Biden administration is hoping you won’t remember.

Who Is Responsible For The Price Of Gas?

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On Friday, The Blaze posted an article about the high price of gasoline at at the pump. Recently, Democrats have accused oil companies of profiteering–making excessive profits on the backs of American consumers. Well, that charge does not hold water.

The Blaze reports:

Economists at the Federal Reserve of Dallas published analysis this week debunking a popular claim that Democrats make against oil companies.

…Next week, the House is even voting on legislation promoted by Democrats to combat the oil industry’s alleged exploitation of consumers.

The article lists the real cause of the problem:

Garrett Golding and Lutz Kilian, senior economic analysts at the Federal Reserve of Dallas, explained that profiteering and price gouging are not contributing to the staggering price of gas.

Two facts in particular disprove this myth. Golding and Kilian explained:

  • Gas station operators set prices: “Gas station operators set retail prices based on their expected acquisition cost for the next delivery of fuel from the local distributor, federal and state tax rates, and a markup that covers operating expenses, such as rent, delivery charges and credit card fees.”
  • Nearly every gas station is owned by a company that does not produce oil: “Since only 1 percent of service stations in the U.S. are owned by companies that also produce oil, U.S. oil producers are in no position to control retail gasoline prices.”

The article explains the rise and fall of gasoline prices:

The economists also addressed asymmetric nature of gas price changes.

[T]he asymmetry of the response of retail gasoline prices need not be evidence of price gouging. One potential explanation is that station operators are recapturing margins lost during the upswing, when gas stations were initially slow to increase pump prices. The reluctance to lower retail prices also likely reflects concerns that oil prices—and, hence, wholesale gasoline prices—may quickly rebound, eating into station profit margins.

Another possible reason for this asymmetry is consumers’ tendency to more intensively search for lower pump prices as gasoline prices rise than when they decline. This diminished search effort provides further pricing power to gas stations, causing prices to fall more slowly than they rose. This has prompted researchers to liken the response of gasoline prices to higher oil prices to a rocket—and the response to lower oil prices to a feather.

It is not noted in the article, but making America energy independent once again might be a big step in the right direction to bring gasoline prices down.