By Quentin Fottrell
While inflation remained in check for December, gas and food prices continued to rise. The culprit, say some experts: Europe.
Sluggish auto sales and steep discounting by retailers are responsible for keeping inflation level, experts say. The Consumer Price Index was flat in December, according to data released today — less than the tepid 0.1% rise expected by economists surveyed by Dow Jones Newswires. But “no one really believes that inflation has subsided,” says Robert Schmansky, founder of Clear Financial Advisors in Bloomfield Hills, Mich. In fact, inflation rose 3% on the year in December — twice the 1.5% rise in 2010 the biggest annual rise in four years — largely due to higher gas and food prices.
Experts say those prices are expected to keep rising. Mark Perry, visiting scholar at the American Enterprise Institute in Washington, D.C., sees higher inflation this year than last. Thanks to Europe’s ongoing debt crisis, the dollar is likely rise against the euro and push up gas and food prices, says David Abuaf, chief investment officer at Hefty Wealth Partners in Auburn, Ind. “Until there’s some sort of solution in Europe, the value of groceries and gas here will rise,” he says, predicting that gas will jump another 10% and food 4.7%, the same rate as last year. “The price of everything from cotton to pig will be more expensive.”
For their part, consumers may increasingly move away from their favorite local supermarkets for their groceries and buy more in bulk at big box retailers, which are better able to resist significant price increases, says Abuaf. As a result, retailers will be under pressure to absorb higher prices, particularly on items less sensitive to inflation such as electronics (TVs rather than tablets and smartphones), Schmansky says. “Most consumers are still in the mode of trying to conserve and save, look for deals and they should continue along that path,” he says.
There are also ways to keep track of gas prices. Crowd-sourced apps like GasBuddy.com have around 500,000 users who give daily updates on what gas stations give the best value. For those planning big summer road trips, the most volatility will occur during hurricane season from August 1 through September 15, according to Patrick DeHaan, senior petroleum analyst at GasBuddy.com. There are simpler ways, too. DeHaan says drivers can save about 1 cent to 3 cents per gallon by buying non-branded fuel as gas stations pay more to be associated with a household brand, “and the majority of drivers could increase their gas mileage significantly just by slowing down a bit,” he says.