- The Washington Times - Wednesday, August 20, 2008

Wholesale prices soared 1.2 percent in July, the third consecutive month that prices at the producer level have risen more than 1 percent, the Labor Department reported Tuesday.

Inflationary pressures at the wholesale level have contributed to rising consumer prices, which have outpaced income gains. As a result, consumers’ purchasing power has fallen, worsening an economic slowdown that began last fall after the credit crisis engulfed financial and housing markets.

Meanwhile, as home foreclosures and unsold housing inventory levels soared, housing starts last month plunged 29.6 percent below their July 2007 level, the Department of Housing and Urban Development reported Tuesday.

Single-family housing permits in July were down 5.2 percent from June. Compared with a year ago, single-family permits have plunged 41.4 percent to their lowest rate since September 1982.

During the past 12 months, wholesale prices have jumped 9.8 percent, the biggest 12-month leap since June 1981. Energy prices at the wholesale level increased 28 percent over the same period.

“This is just another rude reminder of the fact that higher prices in July were more than eating into the incomes of workers,” said Stuart Hoffman, chief economist of PNC Financial Services Group in Pittsburgh.

As consumer prices increased 5.6 percent over the past 12 months, average weekly wages fell 3.1 percent after adjusting for inflation, the Labor Department reported last week. In fact, average weekly incomes last month are less than they were in January 2001, when President Bush took office.

Over the past three months, wholesale prices have been rising at an annualized rate of nearly 20 percent.

One bright spot for consumers: Surging energy and food prices have not passed through to other sectors - yet.

“It reflects the lack of pricing power for most U.S. producers facing weak demand and brutal import and offshoring pricing pressure,” said Charles McMillion, president of MBG Information Services, an economic-forecasting firm in Washington.

That trend might be changing.

“There was a lot of pass-through of higher energy costs into other sectors of the economy last month,” Mr. Hoffman said, referring to the 0.7 percent jump in July’s core wholesale prices. That is a “discomforting” development, he said, because it indicates that energy inflation may now be breaking out into the rest of the economy.

On the other hand, with oil prices declining by more than 20 percent in recent weeks and the dollar strengthening in currency markets, inflationary pressures have subsided somewhat, Mr. Hoffman said.

Meanwhile, “with housing permits continuing to decline,” he said, “we still have not seen the bottom of housing starts. Therefore, housing’s negative impact on the economy will continue.”

The plunge in residential construction has exacted a heavy toll on the overall economy, chopping half a point from 2006 growth and roughly a full percentage point since then. From its peak during the fourth quarter of 2005 to the second quarter of this year, residential construction has plunged by 39 percent, according to Commerce Department figures.

“New-home starts in July are down 29.6 percent from a year ago, with every indication that the debt industries’ housing and related scams/crises are spreading and worsening not only in the United States, but throughout the G-7 countries,” Mr. McMillion said, referring to the Group of Seven nations - Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

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