HomeInflationInflation helped by lower commodity prices

Inflation helped by lower commodity prices

The Fed and consumers may have less cause for worry over inflation as a continual fall in commodities gives everyone money to purchase more than gas and groceries.

In the last Federal Reserve meeting on August 4, the Fed said "inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities."

While commodity prices have increased, they are nowhere near their punishing spring highs. As an example, oil prices dropped Monday to a low of $112.72 a barrel. A far cry from its record high of $147.27 on July 11.

Other commodities like copper, wheat, rice, and corn have fallen 20-30% in the last few months. And that trend, so far, is continuing.

"The falling prices helps shore up consumer spending and also has an effect on inflation,” says Jay Bryson, global economist at Wachovia Economics Group in Charlotte, N.C. “The Fed probably does not need to tighten interest rates now.”

The latest inflation/CPI data release on Thursday by the Bureau of Labor Statistics (BLS) may start to show some of the better price savings, reflecting an improved picture for inflation. Even more telling should be the August data release, which occurs in September. (BLS figures always cover data from the previous month.)

With commodity costs decreasing and inflation steadier, retail prices should continue to decline within the next several months, and not just at the gas pumps.

Of course, much or nearly everything hinges on crude-oil prices not getting further out of hand again.


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