Friday, August 17, 2001 - Rapidly rising home and energy prices catapulted metro Denver's inflation rate to 5.4 percent in the first half of the year.
The rate of consumer price increases in Denver is the highest since 1983, when the country was still retreating from the double-digit inflation of the late 1970s, according to the Labor Department's Consumer Price Index.
In contrast, the nation's inflation rate ran a much lower 3.4 percent during the same period, which covers the first six months of 2001 compared with the same period in 2000.
"It is a little surprising that we can hold up these kind of prices," said Richard Wobbekind, director of the business research division at the University of Colorado.
But it reflects an economy that has resisted the national slowdown.
Denver's housing market has remained robust as home sales have weakened in other markets. Wage increases here also have outpaced the rest of the nation, driving up prices, he said.
Home prices began rising at double-digit rates in 1999 and continued to rise at 12 percent through the second quarter, said Mike Rinner, senior analyst at the Genesis Group in Centennial.
Economists were waiting for the time when the housing increases would finally show up as inflation, and that day has finally arrived.
Housing costs represent 42 percent of the CPI, said Jacqueline Michael-Midkiff, an economist with the Bureau of Labor Statistics in Kansas City.
"Housing has the most weight," she said. "It was the really big thing."
Denver housing costs rose 7.7 percent, driven by a 6.4 percent rise in the cost of rent and mortgage payments and a 27.1 percent spike in utility bills. Natural gas for heating homes skyrocketed 89.4 percent. Gasoline prices rose 11.4 percent.
"It is really an energy shock," said Nancy McCallin, director of the Office of State Planning and Budgeting.
More difficult to decipher was a 7.8 percent jump in clothing costs, which have remained essentially flat over the past 16 years. Nationally, retailers have been discounting to cope with reduced demand. Denverites, however, may have used fatter paychecks to upgrade their wardrobes.
Ron Neel, owner of The Shirt Broker in the Tabor Center, says his prices are up because he's selling higher-quality garments.
"We are getting better fabrics," Neel said. "Our prices were $120 last year. Our makers are sending us $140 shirts this year because there is a demand for them."
The Consumer Price Index tracks price changes for a basket of items - food, housing, clothing, transportation, recreation, medical care and miscellaneous items. The index measures price changes in relation to the early 1980s and covers urban areas. There is no Colorado CPI.
Although Denver's inflation rate has outpaced the U.S. rate since 1992, the gap has never been this wide, Wobbekind said. The Colorado Business Economic Outlook Committee, which Wobbekind oversees, had been forecasting 3.3 percent inflation this year, based on the slowing economy.
McCallin had been calling for inflation closer to 4 percent .
Neither economist expects prices to continue rising so strongly through the second half of the year, especially against a slowing trend in the U.S. economy.
U.S. consumer prices dropped 0.3 percent in July, the biggest decline since April 1986. Lower costs for gasoline, clothing and computers were recorded by the Labor Department.
If the price decreases, which reflect in part weak consumer demand, continue, the nation could once again experience deflation or sustained decreasing prices, something the country hasn't faced since the 1930s.
Aus Denver Post
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