July 18, 2013

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Gasoline, Airfare Costs Driving Inflation in Utah

Rachel Madison

July 18, 2013

Rising transportation costs have driven inflation across the state this summer. In June alone, Utahns paid approximately 4 percent more for a gallon of gasoline than they did in May, and airfare costs increased by nearly 18 percent this month.

According to the Zions Bank Wasatch Front Consumer Price Index, transportation costs in the state, which are up 2.7 percent month-over-month, were pushed higher in June by the rising gasoline prices. Utahns paid approximately 13 cents more for a gallon of gasoline on average in the month of June than they did in the month of May. According to the AAA, this put Utah in the spot for the eighth-highest gasoline prices in the country.

In most states, average gasoline prices fell about 20 cents in June as gasoline inventories swelled to their highest levels since 1992 due to increased domestic production across the nation, according to the national CPI.

“Utah is a laggard in gasoline prices,” said Randy Shumway, CEO of The Cicero Group and economic adviser to Zions Bank. “All you have to do is look at what has happened in Los Angeles, Chicago, Dallas, Atlanta and New York for the last two months and you know that’s the direction Utah’s headed. It’s about four to five weeks behind large metro cities. That’s why we have a pretty good idea that prices will begin to fall now. They will continue to do so for the next several weeks and then they’ll plateau, just like in the metropolitan cities.”

Although the increased price of gasoline was the chief driver of higher transportation costs, airfare costs also contributed by jumping nearly 18 percent this month. During the summer months, travel routinely increases, and because of this, airlines are more likely to increase prices.

“Airfare costs are up because gas prices have been higher and they are also based on supply and demand,” Shumway said. “As demand increases, prices follow.”

According to the American Express Spending and Saving Tracker, 69 percent of adults in the United States have summer vacations planned this year, which is up 10 percent from last year.

According to the Wasatch Front CPI, during the last 12 months, overall prices in Utah have increased by 1.6 percent. In comparison, prices across the United States have increased at a rate of 1.8 percent year-over-year, according to the national CPI.

This inflation may not seem like a good thing to many Utahns, but according to Shumway, the target inflation rate for the United States is 2 to 3 percent annually.

“That increase demonstrates a sustainable flow of money and growth in demand,” he said. “Deflation has a dangerous impact on consumers because consumer spending constitutes 70 percent of the nation’s economic activity. If you think the prices of items are going to be lower each month, then you won’t spend any money this month. This creates a dangerous cycle where people lose their jobs and prices are driven lower and lower. We actually want prices to creep up a little more.”

Scott Anderson, Zions Bank president and CEO, said increasing gasoline prices can be a major source of frustration for consumers, but Utahns are resilient and inflation is still below historic levels.

“While prices at the pump are jumping, prices elsewhere have remained relatively stable, keeping Utah affordable and our cost of living low,” he said

The Zions Bank Wasatch Front CPI is tabulated by The Cicero Group and Dan Jones & Associates, and has been released monthly by Zions Bank as a community service to Utahns since January 2011.

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