Consumer prices rise in 2007
U.S. consumer prices rose last year at the highest rate in nearly two decades, mainly due to soaring energy and food prices, the U.S. Labor Department reported Wednesday.
The Consumer Price Index, the government's broadly used inflation yardstick, rose 0.3 percent in December after jumping 0.8 percent in November. For the year it climbed 4.1 percent, up from 2.5 per-cent in 2006.
Excluding the volatile costs of food and energy, the core inflation rate rose 2.4 percent for the year as a whole.
Analysts said the inflation rates aren't likely to discourage the Federal Reserve from cutting interest rates.
"The data shows the Federal Reserve has some wiggle room in stimulating the economy with rate cuts," said Dr. Tun Wei, chief economist with the National Association of Federal Credit Unions.
Federal Reserve policy makers are widely expected to cut interest rates by a half percentage point when they meet at the end of January.
Energy prices jumped sharply last year by 17.4 percent compared with a rise of 2.9 percent in 2006, while food prices rose 4.9 percent in 2007, showing the biggest increases in both sectors since 1990. Gasoline rose to its highest level since 1999, up 29.4 percent.
The 2007 inflation rate for the Chicago-Gary-Kenosha area increased more than the national rate, up 4.7 percent in 2007, and some local residents are feeling it.
Rachel Ullrich, manager of Fleur Inc., a Logan-Square-based florist, has been forced to raise prices due to an increase in delivery costs. The messenger service used by Fleur hiked its charges by over 20 percent due to rising gas prices.
"When customers are generally spending upwards of $100 per order, an extra $10 for delivery makes a notable difference," Ullrich said.
Jessie Allen of the northwest suburbs said he can't afford to drive to work anymore because of rising gas prices.
"I try to limit my travel by doing all of my errands at one time, but it's gotten so bad that I can't even afford to visit my family."
Jacqueline Wiley of the south suburbs says she has to ration eggs and milk to her four children because of skyrocketing dairy prices.
The CPI report cited dairy products as having the largest price rise of all the food groups, with a 19 percent increase in milk prices alone in 2007.
Local dairy companies are feeling not only the pressure of higher prices but also a drop in sales.
Bob Renault, president and CEO of Oberweis Dairy based in North Aurora, said he hasn't seen such high milk prices in over 20 years. Because of a 25 percent increase in milk prices from farmers, Oberweis has increased its product prices by nearly 15 percent in the past year.
Renault said that brought on a 4 percent to 6 percent drop in sales.
"My hands are tied," Renault said. "There is not much I can do as long as I am in the dairy business."
Economists mostly agree high energy and food costs are here to stay for now.
"There is not much the Federal Reserve can do at this point with regard to these soaring prices," said Dr. Philip Morici, economist and professor of business at the University of Maryland, College Park.
"I see the existing energy and food prices only continuing in the next year."