Housing, food, health may drive inflation
The bank's Wasatch Front Cost of Living Index for December rose 0.2 percent on a non-seasonally adjusted basis over the prior month, with declines in transportation and health care outweighed by increases in groceries, clothing and housing costs. During the past six months, the index was down 0.1 percent compared to the same period a year ago.
"Essentially, that 0.1 percent means that we had no inflation here in Utah," said Kelly K. Matthews, Wells' executive vice president and economist.
That's significant, given that the year-over change in transportation costs over the past six months was down 11.4 percent, Matthews said.
"If we'd thought a year ago that we'd have to live through $78 crude oil, and $3 gasoline, with national inflation at 2 3/4 percent, we'd never have believed that could be possible," he said.
Nationally, the U.S. Labor Department reported last week that its Consumer Price Index rose 0.5 percent on a seasonally adjusted basis in December compared to the prior month, and 2.5 percent for the year.
Housing prices are likely to edge higher in 2007, Matthews predicted, and that increase will start to bleed over into the rental markets as well. Higher prices are also on tap at the grocery stores, Matthews said, and not just because of the recent crop damage due to cold weather.
As the country puts the pedal down on developing alternative fuel technology — tapping corn and soybean supplies — that means less for animal feed and other uses, Matthews said. And that will bring higher prices for groceries.
"We'll reduce our dependency on foreign sources (of oil), but we'll also see an increase in the prices for corn and soybeans," he said. "Basic prices for corn on the commodities markets are already considerably higher than they once were. Undoubtedly, it's going to be much more expensive to feed animals, so I think as we go through this year, the impact of the synthetic fuel situation will start showing up in our basic food prices."
If it is true that oil producers won't let prices go much below current levels, and if it is also true that the country needs crude oil prices fairly close to $50 per barrel to sustain the alternative fuel movement, Matthews said prices are likely to stay about where they are — barring major, disruptive events.
"While the world demand for gasoline went up last year, the numbers are showing that the U.S. demand for gas slipped last year, which is the first in a long time that we've seen a decline," he said. "So, at least here in the U.S., the high gas prices are starting to affect our driving habits. And if we believe that we do need $2 per gallon gas to keep the research and development in synthetic fuels going, that's probably in our own best interest."
The question mark, at least in the inflation discussion, seems to be health-care costs, Matthews said. President Bush's ambitious new plan, unveiled in greater detail in his State of the Union address, could herald big changes for Utahns.
"I happen to believe that Utah has very high-quality health care and that our prices are considerably lower than the national average," he said. "In the time we've been measuring this stuff, we've seen health-care costs increase 57 percent in Utah, versus 149 percent nationally.
"So, we'll want to keep an eye on the health-care thing. I think that everybody agrees that something will be done."
E-mail: jnii@desnews.com
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