By Jim Cline and Kate Kremer
The recent fall off in gas prices has dramatically impacted the reported inflation rate. The most recent rate reported on the Seattle inflation numbers were through the end of 2014 and, following a dramatic fall in fuel prices, the Seattle number plummeted. Its high number for the year was 2.6% in April and by December that number had dropped to 1.1%. Even more dramatic was the drop of the All-Cities national CPI number to 0.3%. This chart shows the inflation numbers during the course of 2014:
But there’s more to unfold in the CPI story. If that late year rate drop wasn’t dramatic enough, the lagging inflation reports on fuel prices showed inflation dropped even further in January. The BLS monthly numbers released February 26 showed that the national prices dropped a half a percent in the month of January alone, pushing the 12 month All-Cities number (January 2014-January 2015) into negative territory: -0.1%.
There was no reported Seattle number for January because the Seattle number is reported bi-monthly. But we can assumed a similar downward force was placed on Seattle prices during that time period.
While we might expect that downward trend to show itself in the next upcoming bi-monthly inflation report, numerous indications exist that since January, gas prices have turned around and are heading back up. Economists are expecting this dip to be short-lived. But because fuel prices are not returning all the way back to where they were earlier in 2014, we can anticipate that overall, the CPI in the months ahead will fall far short of the previously projected 2% target. In a previous blog from last summer we discussed the Fed’s 2% inflation target and the likelihood that they would hit that number. Experts are still predicting 2% inflation by the end of 2015, despite the recent plunge in fuel prices.
This recent decline in inflation is certain to impact the path of labor contract negotiations, although the actual impact is uncertain. We are expecting the CPI rate to bounce back up by this summer but we are not anticipating that it will return to its previous projected rate of 2% or more. Instead, we would expect a June Seattle CPI number closer to 1.5 percent and an All-Cities number lagging behind that. And unless there are some other unexpected events, we are basing our negotiations on an assumption that inflation will return near 2% by late 2015 or early 2016.
In our next blog on inflation, we’ll discuss how this recent unexpected drop might impact your contract negotiations and how you might respond to it.
For further information about CPI and inflation, visit the premium website.
