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May 1989, Vol. 112, No. 5
Price highlights of 1988: rising pressures on consumer prices
Craig Howell, Andrew Clem, Thomas J. Mosimann, and others
For the 12-month period ended in December 1988, the Consumer Price Index for All Urban Consumers (CPI-U) rose 4.4 percent, the same as in 1987. In contrast, the Producer Price Index (PPI) accelerated over the previous year. The PPI for Finished Goods rose 4.0 percent in 1988, compared with 2.2 percent in 1987. The Intermediate Goods index climbed 5.7 percent in 1988, a little more than in the previous year, while the increase in the Crude Goods index slowed to 2.8 percent, from an 8.9-percent surge in 1987. (See table 1.)
In addition to rising materials prices, 1988 saw increasing cost pressures resulting from the fuller utilization of resources. The downward movement (towards 5 percent) in the unemployment rate coincided with an upward move of 4.9 percent in the Employment Cost Index, the largest increase in that measure since 1984. The current high rate of capacity utilization has also exerted pressure on prices.
While the overall rates of change for the CPI-U were the same in 1987 and 1988, the composition was notably different. Energy costs changed little on average in 1988, after partially rebounding in 1987 from the effects of the 1986 oil glut. Excluding energy, however, the CPI-U advanced 4.7 percent during 1988, compared with a 4.1-percent increase in 1987. Rising food prices were partially responsible for this accelerationfood prices were up 5.2 percent in 1988, the most since 1980, reflecting, in part, the adverse summer weather. Shelter costs increased slightly less than in 1987. The index for all items excluding food, shelter, and energyup 4.7 percent in 1988continued to accelerate from its 1986 low of 3.3 percent. Prices for both the other commodities and the other services groups accelerated in 1988. Within the other services group, each component contributed to the larger advance, in particular, automobile finance charges and automobile insurance costs. Price increases for clothing and tobacco products accounted for nearly 40 percent of the rise in the other commodities index.
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