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Prices Surging, Consumer Confidence Plunging

Food, energy prices rising rapidly as economy softens

By Mark Huffman
ConsumerAffairs.com

February 26, 2008

Not surprisingly, consumer confidence is taking a hit.

In a separate report, the Conference Board, a business research group, said consumer confidence fell to a five year low in February. The group's index of consumer sentiment fell to 75.0 in February from a downwardly revised 87.3 in January. It was the biggest one-month drop since Hurricane Katrina, in 2005.

Even when government economists removed food and energy prices from the equation, producer prices were sharply higher, up 0.4 percent. While that appears to bode ill for consumers in the months ahead, Joel Naroff, chief economist for Commerce Bancorp, says a slowing economy may actually help the consumer.

"Cost pressures continue to build but with a major slowdown in the economy, it is not clear how much of those increases can be passed on to the consumer," Naroff said.

Even so, he says rising costs of energy are beginning to be felt throughout the economy, and the consumer is seeing the results of that, not only at the gas pump, but the grocery checkout line as well.

"Food prices are skyrocketing and every household knows that," Naroff said. "Other areas where the economy is actually strong also showed cost gains. In other words, producer costs are on the rise and it is not simply limited to food and energy. And with the pipeline filled with more cost increases, don't expect any respite from the bad news for a while."

Gas prices are up almost 20 cents over the past two weeks with the national average price now at $3.14. The increase leaves the price of regular self-serve gasoline almost 70 cents higher than the average price this time last year.

One month ago regular self-serve gasoline sold for an average nation price of $2.99 and one year ago a gallon of regular cost $2.30.

The big jump in prices is linked directly to international oil prices according to industry analyst Trilby Lundberg. "It is entirely from rising crude oil prices," she said.

The U.S. housing market, meanwhile, fell deeper into its slump in January, as sales of existing homes hit their lowest level in the last nine years.

The National Association of Realtors reports sales of single-family, townhomes, condominiums and co-ops, slipped 0.4 percent to a seasonally adjusted annual rate of 4.89 million units in January from an upwardly revised level of 4.91 million in December, and are 23.4 percent below the 6.44 million-unit pace in January 2007.

"Subprime loans and other risky mortgage products have virtually disappeared from the marketplace, and over the past five months, this has been reflected in soft but fairly stable home sales," said Lawrence Yun, NAR chief economist.

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