Ask cen, a: Why is inflation rising? Here’s a short answer to that question

U.S. inflation has consistently risen over the past year, although it slowed a bit in December from a pace that picked up toward the end of 2018. Following is a look at the quarterly data to explain why, and why inflation is expected to ease.

Q: What gives?

What’s behind the rising price of stuff we buy, the way we live our lives, and the way government watches them? Two words: wages and energy.

Wages are steadily rising over the past year in the U.S. After a couple of slow years, worker salaries are up 5.7 percent for all workers. That’s the biggest year-over-year jump since the recession ended five years ago. Price declines for clothing, transportation and housing have helped push up prices.

Higher wages are still keeping inflation below the Fed’s target of 2 percent, but recent increases in food prices are pushing up consumer prices more than workers’ wages. Government figures released Thursday show that food prices rose 2.6 percent last year from the previous year.

Meanwhile, energy prices are also rising, after being depressed by low oil prices last year.

Q: Why is that important?

Energy prices and wages are usually closely related, and energy prices are rising because oil prices are higher, especially in the export-dependent Middle East. A related factor: Some of the economic forces that push up energy prices also help boost wages — such as lower demand in Europe for oil because of a lack of energy policy, and higher demand in Asia and South America. Rising energy prices, more than other factors, can accelerate inflation.

Q: What about drugs?

Competition can also dampen drug prices — as the trade war between the U.S. and China has pushed down the price of Chinese medicines. But drug prices overall are expected to fall this year because of cheaper alternatives, according to a study from the Kaiser Family Foundation and a health care consulting firm.

Q: What about the Fed?

The cost of inflation is higher, and so is the cost of raising rates to quell inflation.

The Fed hiked its benchmark rate in December, for the fourth time since late 2015. The fourth rate hike will be announced March 19, and the Fed is expected to raise the rate another quarter-point in May and June.

Q: So when will price increases slow down?

Q: Oil prices are forecast to have risen recently, though analysts expect it will take more time for energy prices to stabilize, and there’s also concern that slower global growth could put a damper on energy prices.

In general, labor inflation tends to lag wage inflation by one to two years. Higher energy prices, and an expected increase in oil prices, could help push inflation up in the short run, but such a jump in energy prices could quickly reverse its effect on the rate of increase in the 12 months ahead.

Energy prices tend to move in sync with the price of other commodities. As oil prices rise, so does the price of other commodities, which can then affect the price of manufactured products like steel and glass. Another factor pushing up energy prices is that nearly two-thirds of U.S. oil and natural gas output is from shale fields in the Midwest and Texas.

Q: Is there a chance inflation could cool off even if energy prices go up?

Yes. Oil prices are generally volatile, and if the supply of crude keeps falling, it could pressure prices. But if energy prices fall, less gasoline could end up being sold, lowering overall prices and quelling inflation.

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