April 27, 1996 in Nation/World

Inflation Woes Could Crimp Summer’s Activities Family Picnics And Long Drives In The Country Could Be More Expensive

Associated Press
 

After a seemingly endless winter, many people now yearn for leisurely drives in the country, outdoor picnics and family barbecues.

But will summer be chilled by rising prices at gas pumps and grocery stores?

Shirley Bany, of Forest City, Iowa, is somewhat concerned. “We plan to go out every weekend this summer and use our Winnebago motor home. With higher gas prices, we’ll have to curtail other expenses. We’ll do a lot of our own cooking.”

Some economists see inflation troubles ahead given the recent rise in basics like crude oil and grains. Pressure on Congress to raise the minimum wage also has aroused concern about inflation. Whether a rise in the cost of living is temporary is a matter of debate.

“We think the seeds have been sown,” said Daniel Seto, senior economist for Nikko Securities Co. International Inc. in New York, arguing that accelerated inflation is inevitable. He forecast consumer prices will rise by 3.5 percent in the second half of the year.

Sung Won Sohn, chief economist for Norwest Corp. in Minneapolis, was more optimistic, predicting inflation would edge up but only in the 2.5 percent to 3 percent range.

Several leading economists surveyed earlier this month by Blue Chip Economic Indicators, a Sedona, Ariz., newsletter, also predicted little change from last year’s 2.7 percent inflation rate.

For now, though, signs of higher inflation have been unmistakable:

Gasoline prices have risen steadily at service stations across the country, reaching as high as $2 a gallon in California. Wheat prices have set records on the commodity futures markets. Congress has been moving closer to voting on raising the hourly minimum wage, which would increase labor costs for many businesses.

The Commodity Research Bureau Index - which measures the prices of 17 basics including crude oil, wheat and live cattle - is now at its highest level since the late 1980s.

Several factors are to blame for the more expensive fuel, including a harsh winter that prompted refiners to produce more heating oil and less gasoline. Adding to the problem was an apparent breakdown in talks between the United Nations and Iraq over lifting an oil embargo imposed on that country.

“I view this problem as short-term,” said Sohn. “The embargo eventually will be lifted.”

While consumers have felt the effects of higher energy futures, they haven’t yet noticed the run-up in wheat. That’s partly because higher prices for products like bread and cereal take longer to filter through the economy. They also reflect the cost of packaging and marketing.

“Only about 12- to 15 percent (of the total cost) represents raw commodity costs,” said Maury N. Harris, chief economist for PaineWebber Inc.

In fact, the cost of food made with grain has been coming down. The Post cereal brand line recently lowered prices. Information Resources Inc., a Chicago-based market research firm, noted recently that the average price for a loaf of bread has fallen slightly vs. a year ago.

As for how a minimum wage increase would influence inflation, economists are split. Democratic lawmakers have proposed a 90 cent hourly increase to $5.25 spread over two years. A small group of Republicans has proposed a $1 hourly increase spread over 15 months.

Either way, Seto said, the increase would put a lot of pressure on businesses to raise prices.

Harris said he doesn’t think that would have any serious impact.

“Less than 4 percent of the work force makes at or below minimum wage. It’s not really a big number.”

© Copyright 1996 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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