Transportation prices pulled the cost of living higher in Utah and around the country last month, according to reports released Wednesday.
And while gas prices are expected to fall in coming weeks, the pressure on prices may continue as concern builds over the nation's mounting trade deficit.
Wells Fargo Bank reported Wednesday that prices along the Wasatch Front increased 0.7 percent in October. Transportation costs led the way, spiking 3.4 percent higher than September prices. Grocery costs also edged higher, which Wells attributed in part to higher fruit and produce prices following the hurricanes that struck Florida and the Gulf Coast in August and September.
Aside from a 0.1 percent increase in clothing prices, all other price categories remained steady, according to the Wells Fargo report.
"We see a lot of this being somewhat temporary in nature and reversible," said Sterling Jenson, senior managing director of Wells Capital Management in Salt Lake City.
Crude oil prices, which peaked earlier this month at $55 per barrel, were closer to $46 per barrel Wednesday, Jenson said. That should translate into lower prices at the gas pumps in the next few weeks.
Nationwide, prices rose 0.6 percent in October, the most since May, according to a U.S. Labor Department report released Wednesday. Consumer prices for all goods and services were up 3.2 percent for the 12 months that ended in October, compared with a 3 percent year-over-year gain the previous month. Core prices were 2 percent higher over that period, the same as in September.
"We have a solid economy and slowly rising inflation," said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa. "This only reinforces the belief that the Fed will tighten a lot more."
Other economic news added to the case for another rate increase by the Fed:
Industrial production shot up 0.7 percent in October, following a 0.1 percent increase in September, the Federal Reserve reported.
Housing construction jumped 6.4 percent last month to a seasonally adjusted annual rate of 2.03 million units — the highest level of this year, the Commerce Department said.
The storms that hit Florida added to price pressures nationwide in October. Food prices, which account for about a fifth of the index, rose 0.6 percent in October after being unchanged the month before. Last month's increase was led by the biggest gain in prices for fruits since June 1984 and the biggest for vegetables since February 1997.
Energy prices rose 4.2 percent nationwide in October, the most since May, after falling 0.4 percent a month earlier. Gasoline prices rose 8.6 percent, and home-heating oil costs rose 9.4 percent. The increases for both of those are the biggest since February 2003.
While much attention has been paid to gas prices, Jenson said debates during the next year are likely to center on the nation's trade deficit and the strength of the dollar.
"As we look forward over the next year, the dollar and trade will probably become the major topics of discussion economically," Jenson said. "From 1995 through 2002, the dollar rose over 50 percent in value. As it rose in value, it helped to keep inflation rather subdued. . . . As a consequence, we saw prices decline as we imported deflation from some of our major trading partners. It helped to explain how inflation was kept below long-term trends. It helped explain why the manufacturing sector was exporting jobs overseas."
In the next few years, Jenson said, there may be a "major sea-change" because the value of the dollar has weakened since 2002. That will translate into higher prices for imported goods, which will keep inflation above the levels to which Americans have become accustomed over the last decade.
Jenson said he wouldn't be surprised to see inflation reach 2 percent to 3 percent in the next few years. As the dollar weakens, Jenson said America's $600 billion trade deficit could begin to improve and fuel growth in gross domestic product.
"What that means is we'll actually have more job growth in the U.S.," Jenson said. "We'll begin to bring back manufacturing jobs to this country that had been exported previously. It could create labor shortages a few years from now as our trade deficit improves."
Inflation pressures will increase, Jenson said, along with interest rates.
"Some of the things we've become accustomed to over the last 10 years or so are going to begin to reverse themselves," he said. "Inflation will become a bit more of a problem. Rates will be higher than expected. But growth rates will be higher. Employment will improve.
"The economy will continue strong, and it will be favorable for the stock market. Corporations will get pricing flexibility back again that they haven't had for a decade. As they increase prices and as business conditions improve here domestically, that'll be favorable for corporate profits."
Wells Capital Management has seen "major upward movement" in the stock market in the last month and maintains hope the market will reach 10 percent to 15 percent growth by year's end.
"We're seeing some reflective changes in contemporary thought over the last three or four years," he said. "With inflation now beginning to increase, the economy continuing to grow, things just look favorable from an economic perspective. But we just have to know that we'll be paying higher interest rates, and that inflation is beginning to increase the cost of goods."
Contributing: Bloomberg News; The Associated Press
E-mail: jnii@desnews.com