Everyday Prices Heat Up

Rising natural gas prices also contributed to the increase in household fuel and utilities. Natural gas prices are projected to gradually trend upward in the months ahead. Forecasts predict a cold winter in 2013-2014. Going by historical data, this suggests that demand for natural gas will increase early next year, escalating prices in the beginning of 2014.

A modest rebound in motor fuel prices further influenced the EPI’s rise last month. The motor fuel and transportation index bounced back at a 0.6 percent increase in May after falling 2.8 percent in April. Motor fuel prices alone increased 0.7 percent, while motor vehicle insurance and intracity transportation basically remained unchanged.

Luckily, road warriors are likely to see gas prices stabilize soon. The Organization of the Petroleum Exporting Countries voted in May to maintain current production levels. Meanwhile, U.S. production is at record highs. That means that supply is likely to keep up with increased demand as Americans hit the road for summer vacations.

Refineries are also coming back to full utilization after closing for standard maintenance repairs in the spring. All this will keep the Brent Crude oil spot price lower than it was at this time last year. At press time, regular gasoline price is $3.63 per gallon, equivalent to the average price from last month.

While energy prices went up in May, the prices of most everyday consumer products continued to soften. Prescription drugs fell 0.8 percent, while personal care products decreased 0.5 percent. Falling import prices helped propel this decline. (See AIER’s June Inflation Report.) American manufacturers are reluctant to charge more for consumer goods if it would mean losing business to foreign producers.

The service sector is less vulnerable to import prices. Personal care services were unchanged last month, and the price of food consumed away from home increased 0.2 percent.

While normal seasonal inflation drove much of the EPI’s upswing in May, its 0.7 percent increase over the past 12 months suggests that broad-based inflationary pressures are also at work. The CPI, which places more weight on housing prices, rose 1.4 percent over the past 12 months.

About the EPI

AIER’s Everyday Price Index (EPI) measures the changing prices of frequently purchased items like food and utilities. We do this by selecting the prices of goods and services from the thousands collected monthly by the Bureau of Labor Statistics in computing its Consumer Price Index. The EPI basket contains only prices of goods and services that Americans typically buy at least once a month, excluding contractually fixed purchases such as mortgages. Our staff economists weight each EPI category in proportion to its share of Americans’ average monthly expenditures. In order to better reflect the out-of-pocket prices that consumers experience on a daily basis, the EPI does not seasonally adjust prices.