Energy and Inflation

February 18, 2010

Most of the recent volatility in inflation has been caused by energy.  Canadian non-energy consumer prices, reported today, rose 1.3% both in the year to January 2010 and the 12 months to September 2009.  Total inflation in that interval, however, swung from an on-year decline of 0.9% to an increase of 1.9% over the same short span of time.  That’s because energy prices fell 18.7% in the year to September but advanced by 8.2%  between January 2009 and January 2010.

On-year U.S. producer price inflation was minus 4.9% last September but plus 4.6% last month, as the 12-month change in energy prices swung from minus 22.1% to plus 20.2%.  Non-energy producer price inflation accelerated less sharply to 1.1% from 0.2%.  Likewise, U.S. import price inflation shifted from minus 12.0% last September to plus 11.5% in January 2010, as petroleum product costs swung from negative 34.4% to an on-year jump of 95.5%.

In the euro area, non-energy consumer price inflation of 0.8% in December was actually a tenth lower than the 12-month pace in September 2009.  However, total inflation climbed from negative 0.3% to positive 1.2% over those three months because the 12-month change in energy swung from minus 11.0% to plus 1.8%.

British CPI inflation, which accelerated to 3.5% in January from 1.1% in the year to September, reflects to a significant extent the restoration of a 17.5% value added tax rate, which had been lowered temporarily to 15% as a fiscal gesture during the Great Recession.  But energy was an influential factor as well.  Transportation price inflation accelerated from 1.1% in September to 11.0% in the year to January, and non-energy CPI inflation rose less sharply than the overall CPI, climbing to 3.1% in January from 1.8% last September.

In monthly average terms, West Texas Intermediate crude oil prices crested at $135.97 per barrel in July 2008, a full year after the the onset of the global financial crisis. Oil prices had their lowest monthly mean in February 2009 at $39.18 and subsequently rebounded to $78.43 last month.  The price at this writing is another 0.7% above last month’s mean and 101.6% higher than the February 2009 average level.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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