But step outside the classroom and you won't find very many other people happy about the situation.
Indeed, the pain that started when gasoline prices shot up last summer has only gotten worse as natural
gas, propane, and electricity costs followed suit later in the year. What began as an unwelcome, but
unsurprising swing in one component of transportation costs has now snowballed into a significant
disruption in a much wider range of activities. And, in a manner that is eerily familiar to those who lived
through the stagflation days of the 1970's, the Federal Reserve may find itself hard pressed to do
anything about it.
This new concern follows the Bureau of Labor Statistic's reports of a sharp increase in both wholesale
and retail prices in January. In both cases the primary culprit was energy costs, particularly natural gas.
But the reports also show that price pressures are building across a wider range of goods and services
than energy prices alone can account for. In this unhappy situation, the Fed's ability to stimulate the
economy through further interest rate reductions will be significantly limited.
The January price volatility was particularly pronounced at the wholesale level. The Producer Price
Index for finished goods jumped by a full 1.1 percent in a single month, the largest such gain in more
than ten years. Take away the 3.8 percent gain in energy prices, mostly due to propane and natural
gas, and you still have a worrisome situation. Indeed, the BLS's index that excluded both energy and
food prices jumped by 0.7 percent in the first month of the year, after averaging zero growth over the
last three months of 2000.
For consumers, energy price increases were even more disruptive, although other price gains were
more moderate. Were it not for the staggering 18.6 percent gain in the energy component of their
market baskets, consumers would have only faced a 0.3 percent rise in prices in January, compared to
their December levels. As it was, the overall index rose by 0.6 percent for the month. The evidence of
inflation outside of the volatile food and energy sectors was a bit more muted at the retail level, but
nonetheless remains a concern.
The energy situation thus hovers as a wild card that provides yet another source of uncertainty in assessing the state of the U.S. economy. Although the earlier momentum in the economy was sufficient to allow it to survive a gasoline price increase with surprising ease, the pervasive use of natural gas across a wide spectrum of industries makes price increases harder to be similarly swallowed. And while the situation will probably be greatly eased in a year's time, that's scant comfort to those who are facing its disruptive influence right now.