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Cost of living in Utah fell last month

Transportation costs drop, offsetting a rise in food prices

SHARE Cost of living in Utah fell last month

Falling transportation costs, housing prices and utility bills along the Wasatch Front caused the overall cost of living to fall in December 2001, the sixth consecutive monthly decline.

Wells Fargo reported Wednesday that the overall cost of living locally decreased 0.3 percent (non-seasonally adjusted) in December from the previous month.

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Cost of living index

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"What we've got in addition to the generally weak economy is this decline in energy prices, and so we've had major declines in the transportation category, with essentially no increases in anything else," said Kelly Matthews, Wells Fargo executive vice president and economist.

However, prices rose 2.8 percent in the 12 months ended Dec. 31 over the previous year, Matthews said.

Food prices edged up 2.6 percent in December from November — offset by a 2.8 percent decline in transportation costs.

Nationally, consumer prices edged down 0.2 percent in December (seasonally adjusted). The Consumer Price Index rose by only 1.6 percent in all of 2001, compared with a 3.4 percent jump in 2000.

The December drop resulted from plummeting fuel oil prices, down 26.7 percent; gasoline prices, down 24.9 percent; and natural gas costs, down 15.1 percent, according to the Labor Department.

Declining prices are directly tied to the weak economy, Matthews said.

"If I were Alan Greenspan, I wouldn't be worrying about inflation. I would be hoping we could begin to see something where demand was strong enough so that somebody could raise prices," Matthews said. "There are very few examples of something that I could tell you where prices would be increasing and demand would be strong enough to sustain those price increases."

Although housing costs along the Wasatch Front have increased 3.5 percent in the past six months year-over-year, Matthews said he believes the market may be weakening.

"If you have a major decline in housing costs, if those housing prices were falling, you might say this is wonderful for people, but in reality it reflects the economy is not growing, there may be net out-migration, maybe we're not creating enough jobs," he said. "For example, housing costs in the Boise area have been higher than this 3.5 percent in Salt Lake, and that has been one of the indications that the Boise area was actually growing a little bit stronger."

Matthews also predicted that grocery costs, up 5.3 percent in the last six months, would moderate this year as utility costs continue to fall.

"Falling prices, deflation, is not necessarily, in the big picture, a happy circumstance at all," he said.

But with inflation contained under 2 percent this year and possibly under 1 percent, financial markets should show higher trading prices, said Sterling Jenson, senior managing director for Wells Capital Management.

"Many companies are still unable to give positive forward guidance," he said. "However, we think that as we get into the second half of the year, as we see a year-over-year increase in the economy of 3 to 4 percent, that should begin to favorably impact corporate earnings, and we still have the expectation for the year that the stock market could be up in the 10 to 15 percent range."

But Jenson urges caution for traders in the equity markets in the first half of this year.

"We see a real choppy market this first half. We'll have pretty good increases followed by disappointing declines," Jenson said.

E-mail: danderton@desnews.com