(PORTLAND TRIBUNE) — While Portland consumers may be wringing their hands about rising apartment rents as well as restaurant and retail prices, economists see positives in the most recent inflation report for the region.
The overall inflation rate for the eight-county Portland-Salem-Vancouver area was 2.8 percent last year, reports the U.S. Bureau of Labor Statistics. That compares with a national annual inflation rate of 1.6 percent.
While higher than the national average, the rising cost of living here is in line with acceptable inflation rate increases, experts say.
“Consumers tend to over-weight gasoline prices, for instance, because they regularly buy it and see the price every time they go to the pump,” says Bill Conerly, a Lake Oswego economist. “But items such as apparel and flat-screen TVs are getting cheaper. We don’t pay as much attention to that.”
Every six months, the labor bureau tracks a market basket of items. Among them are grocery store food costs, housing prices, new and used vehicle prices, rent rates, gasoline and medical care costs. The bureau then comes up with a cost of living index and overall inflation rate.
Last year, Portland saw the biggest cost increases in:
• Apartment rent, up 4.5 percent.
• Food, up 3.5 percent.
• Recreation, up 3.4 percent.
• Education and communication, up 3.5 percent
• Food away from home (restaurants, fast-food), up 6.4 percent.
Gasoline prices were down from a year ago, while electricity and natural gas rates moved slightly higher in the latter part of 2013, the report showed.
Conerly suspects that higher car insurance costs may be a factor in the rising cost of transportation here, up 3.6 percent.
But he and fellow economists see the current inflation trends as “muted” with continuing weakness in the job market and the housing industry holding down rising costs.
“Credit growth remains anemic despite five years of a zero percent interest ratepolicy and better than $3 trillion in quantitative easing,” US Bank chief economist Keith Hembre recently said. “The lack of bank credit demand in response to the stimuli of lower rates likely reflects the continued overhang of debt in the broader economy.”
Todd Johnson, labor statistics economist in San Francisco, saw a few surprises in the Portland numbers:
• A 3.4 percent increase in Portland-area recreation costs was a surprise. That category includes everything from tickets to movies and sporting events to the cost of a day at a nearby ski resort.
• Education and communication costs increased 3.5 percent last year. Within that category are cable television and broadband Internet services and print news subscriptions.
• Less surprising for Johnson was the increase in the cost of “shelter” that represents a large component of the overall inflation index. In Portland, average apartment rent rates jumped 4.5 percent last year as compared with a national rent rate increase of 2.9 percent. An unusually tight housing market where fewer people are willing to own a home is pushing rental housing demand higher.
“While the Portland CPI (Consumer Price Index) is running higher than the national average, it’s debatable that this is a concern,” Johnson says. “We saw a higher inflation rate in Portland two years ago when it hit 3.1 percent. Nationally in 2008, it was running at 3.8 percent, while the following year it went negative … We don’t want that.”
Neither does the Federal Reserve Bank, which sees a national average inflation rate of 2 percent as acceptable, if not desirable.
The area likely will continue to see inflationary pressures, especially in food, housing and energy costs.
In January, Portland General Electric kicked in a new 4.5 percent power rate increase and already is asking for another 4.5 percent increase starting in 2015. Natural gas prices have increased substantially in the past few months and will likely remain higher through the rest of the year as demand increases.
On the food front, supply shortages and offshore demand have pushed cheese prices higher. That’s taking a bite out of pizza profits. And beef prices are expected to skyrocket because drought and high feed costs have forced beef growers to sell off herds. Live-cattle market prices have jumped 10 percent so far this year. Meat packers already are paying record prices.
Higher beef prices will affect everyone from Fred Meyer stores, Burgerville and McDonald’s outlets to downtown Portland’s Korean bulgogi food carts. Either they raise prices or lose net profit.