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October 1991, Vol. 114, No. 10
Consumer price rise slows in first half of 1991
Todd Lamar Wilson
The Consumer Price Index for All Urban Consumers (CPI-U) increased at a seasonally adjusted annual rate1 of 2.7 percent during the first 6 months of 1991 - the smallest 6-month rate of increase since December 1986. The rise so far in 1991 compares with annual increases of 6.1 percent in 1990, 4.6 percent in 1989, and 4.4 percent in 1988.2 (See table 1.)
The modest increase in the first half of 1991 largely reflects the falling prices of petroleum-based energy products. These prices began declining in late 1990 and continued dropping during the first quarter of 1991, following the end of fears of oil shortages in the summer and fall of 1990. Speculation in the oil market, which accompanied these fears, was the driving force in rising petroleum prices. Such speculation was primarily the consequence of Iraq's invasion of Kuwait in August 1990 and the resultant United Nations-sanctioned oil embargo. After crude oil markets stabilized, the prices of motor fuels, household fuel oil prices, and airline fares all declined. (See table 2.) (In part, declining airline fares reflected lower input costs of petroleum-based jet fuel.)
Among the consumer goods and services whose prices contributed considerably to consumer price increases during the first half of 1991 were fresh fruits and fresh vegetables, alcoholic beverages, lodging while out of town, tobacco and smoking products, other utilities and public services, and postage. Excluding fresh fruits and fresh vegetables, the indexes for these goods and services were also principally responsible for the rise in the index for all items less food and energy - an often-used measure of the underlying or core rate of inflation. This index rose at an annual rate of 5.0 percent during the first half of 1991, compared with a 5.2-percent increase for all of 1990. Nonetheless, the high rate of increase in the index for all items less food and energy (relative to the rate of increase in the overall CPI), was influenced largely by factors that represent transitory price increases which do not pose a long-term threat to price stability. Such factors included a rise in Federal excise taxes on alcoholic beverages and a hike in postal rates. The increases in the rates of the remaining items (lodging while out of town, tobacco and smoking products, and other utilities and public services) also do not appear to reflect significant underlying inflationary trends for the economy.
This excerpt is from an article published in the October 1991 issue of the Monthly Labor Review. The full text of the article is available in Adobe Acrobat's Portable Document Format (PDF). See How to view a PDF file for more information.
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1 Unless otherwise stated, the term rate refers to a 6-month seasonally adjusted annual rate throughout this article. When seasonally adjusted data are not available, figures that are not seasonally adjusted are used.
2 Annual percent changes for years other than 1991 are December-to-December changes, unless otherwise noted.
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