Impact of commodity price movements on CPI inflation

Monthly Labor Review

Volumn 135, Issue 4, 2012, Pages 29-43

  Ajmera, Richa ^a   Kook, Nancy ^a   Crilley, Jeff ^b  

^a BUREAU OF LABOR STATISTICS   (United States)

^b Office of the Chief Economist   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 84864390326     PISSN: 00981818     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (27)

1. Bart Hobijn, "Commodity Price Movements and PCE Inflation," Current Issues in Economics and Finance (New York, Federal Reserve Bank of New York, November 2008)
2. Carl Chentrens, "Employment Outlook: 2008-2018-Layout and Description for 202-Order Input-Output Tables: 1993 through 2008, Historical and Projected 2018" (U.S. Bureau of Labor Statistics, 2009). This table is no longer available; however, for more recent tables, see Directorate for Science, Technology and Industry of the Organisation for Economic Co-operation and Development, "Input-Output Tables" (Paris, OECD, Mar. 25, 2012), http://www.oecd.org/document/3/0,3746,en_2649_34445_38071427_1_1_1_1,00.html.
3. See, for example, Stephen P. A. Brown and Mine K. Yücel, "Gasoline and Crude Oil Prices: Why the Asymmetry?" Economic and Financial Review (Dallas, Federal Reserve Bank of Dallas, third quarter, 2000).
4. Clinton P. McCully, Brian C. Moyer, and Kenneth J. Stewart, "A Reconciliation between the Consumer Price Index and the Personal Consumption Expenditures Price Index" (U.S. Bureau of Economic Analysis and U.S. Bureau of Labor Statistics, September 2007), http:// www.bea.gov/papers/pdf/cpi_pce.pdf.
5. See Joshua A. Byrge and Kevin L. Kliesen, "Ethanol: Economic Gain or Drain?" The Regional Economist (St. Louis, Federal Reserve Bank of St. Louis, July 2008), http://www.stlouisfed.org/publications/re/ articles/?id=33.
6. For information on the Energy Policy Act, see "Energy Policy Act of 2005" (Public Law 109-58, U.S. Department of the Interior, Aug. 8, 2005), http://www.doi.gov/pam/EnergyPolicyAct2005.pdf.
7. To produce 6 billion gallons of ethanol would require approximately 2.2 billion bushels of corn. (See "Ethanol Reshapes the Corn Market," Amber Waves: The Economics of Food, Farming, Natural resources, and Rural America (U.S. Department of Agriculture, April 2006), http://www.ers.usda.gov/amberwaves/april06/features/ ethanol.htm.)
8. The act is featured on the website of the U.S. Senate Committee on Energy & Natural Resources, www.energy.senate.gov/public.
9. Monthly reports on various aspects of agriculture appear on the website of the Economic Research Service of the U.S. Department of Agriculture, www.ers.usda.gov.
10. For information on crops, see Economics, Statistics, and Market Information System (U.S. Department of Agriculture, no date), http://usda.mannlib.cornell.edu/MannUsda/ viewTaxonomy.do?taxonomyID=25.
11. Let CPI(i, j) = annual average CPI value for category j in year i, PPI(i, j) = annual average PPI value for category j in year i, and share(i, j) = input share for year i for category j. Then the formulas for columns 2, 3, and 4 are as follows.
12. Increased production costs (due to higher feed prices) led farmers to increase slaughter rates, putting downward pressure on prices in the short term with the increased supply to market. The upward and downward price movements from 2006 to 2008 reflected which of these two factors (higher feed prices or increased slaughter rates) was dominant in the short term.
13. Monthly reports on various aspects of agriculture appear on the website of the Economic Research Service of the U.S. Department of Agriculture, www.ers.usda.gov.
14. For information on animal slaughter and processing, see Economics, Statistics, and Market Information System (U.S. Department of Agriculture, no date), http://usda.mannlib.cornell.edu/MannUsda/viewTaxonomy.do?taxonomyID=25.
15. This industry encompasses the manufacture of dairy products, from raw milk and processed milk to dairy substitutes. The products range from fluid milks, yogurt, butter, cheese, and ice cream to dry or condensed milk and whey products.
16. Monthly reports on various aspects of agriculture appear on the website of the Economic Research Service of the U.S. Department of Agriculture, www.ers.usda.gov.
17. For information on dairy, see Economics, Statistics, and Market Information System (U.S. Department of Agriculture, no date), http://usda.mannlib.cornell.edu/MannUsda/viewTaxonomy.do?taxonomyID=25.
18. For information on the Venezuelan oil strike, see Joanne Shore and John Hackworth, "Impacts of the Venezuelan Crude Oil Production Loss" (U.S. Energy Information Administration, Mar. 15, 2007), http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2003/venezuelan/vzimpacts.htm.
19. For information on hurricanes that struck in 2005, see "Hurricane Impacts on the U.S. Oil and Natural Gas Markets," EIA Report on Hurricane Impacts on U.S. Energy (U.S. Energy Information Administration, Dec. 27, 2005), http://tonto.eia.doe.gov/oog/special/eia1_katrina.html.
20. "Hurricane Katrina's Impact on the U.S. Oil and Natural Gas Markets," EIA Report on Hurricane Katrina's Impact on U.S. Energy (U.S. Energy Information Administration, Sept. 7, 2005), http://www.eia.gov/oog/special/eia1_katrina_090705.html.
21. "Hurricane Katrina's Impact on the U.S. Oil and Natural Gas Markets," Daily Report on Hurricane Katrina's Impact on U.S. Energy (U.S. Energy Information Administration, Sept. 15, 2005), http://www.eia.gov/oog/special/eia1_katrina_091505.html.
22. "Hurricane Impacts on the U.S. Oil and Natural Gas Markets," Daily Report on Hurricane Impacts on U.S. Energy (U.S. Energy Information Administration, Sept. 26, 2005), http://www.eia.gov/oog/special/eia1_katrina_092605.html.
23. "Hurricane Impacts on the U.S. Oil and Natural Gas Markets," Daily Report on Hurricane Impacts on U.S. Energy (U.S. Energy Information Administration, Oct. 11, 2005), http://www.eia.gov/oog/ special/eia1_katrina_101105.html.
24. For safety reasons, oil and gas companies will "shut in" production from offshore platforms that are expected to be in the path of a hurricane. The platforms are abandoned until the storm passes.
25. As discussed earlier, there were three major movements in oil and natural gas producer prices from 2001 to 2008: in 2003, 2005, and 2008. In all 3 years, oil and gas prices were up by more than 30 percent. The year 2008 is chosen as the subperiod of interest because the input share was the highest in that year, causing the price movement in 2008 to have the largest impact.
26. Major inputs into fuel prices are oil and gas extraction, petroleum and coal products manufacturing, and wholesale and retail margins. A plausible explanation for the fact that oil prices account for only about 50 percent of fuel price increases is that refining (petroleum and coal products manufacturing) costs went up. Also, in more recent years transportation costs have been affected by volatility in ethanol prices.
27. The contribution of one-third was arrived at by adding the various impacts of the commodity price changes on the CPI (i.e., 19.26 for crops, 9.43 for animal slaughter and processing, and 5.86 for dairy, totaling 34.55 percent).