Diane Swonk: Increases in wholesale prices and the affect on the global economy

Hand holding dollars with U.S. flag in background.

JEREMY HOBSON: Now to this morning's news from the government that producer prices rose by a bit more than a percent in December. We're talking about the cost of things at the wholesale level, before they reach the consumer. On the whole, prices rose a little more than 1 percent. But that's mostly due to a rise in the cost of energy and food.

Diane Swonk is chief economist at Mesirow Financial. She's with us live from Chicago. Good morning.

DIANE SWONK: Good morning.

HOBSON: So, obviously as the economy improves, prices are going to go up. In fact, as I said the Fed wants them to go up more than they are. On balance, is this morning's news good or bad?

SWONK: I think it's bad news because what we're talking about is increasing in food and energy prices that are being driven by factors outside of our control. Mostly the developing economies demanding more from these products, where supply is constrained, particularly in oil. We had some supply shocks -- the BP oil spill, inability to drill in the deep water drilling and a lack of investment when oil prices were much lower. So those prices going up are actually forcing consumers to make some very tough choices and seek discounts elsewhere in the economy as they try to balance out their budgets. We actually saw them cutting back on going to restaurants and movies as oil prices rose in November and in December the early reports suggest they actually cut back on gift buying.

HOBSON: Now, Diane, every time prices rise rapidly, people start to blame speculators -- these investors who just want to make money placing bets on what prices are going to do. In fact regulators are meeting on this very issue today in Washington. Do you think speculators to blame for rising prices this time?

SWONK: Certainly speculators play a role but let's face it -- many shocks have hit both supply and then demand side in the developing world. Again, outside of our control, so there's a desire to reign it in, but there is some fundamental reasons why these prices are going up. I think they're a little bit hefty and a little bit high and frothy at the moment, which does mean spectaculars in other words, that said, there are some real reasons why these prices went up, it's just unfortunately not because demand is so strong in the U.S.

HOBSON: Diane Swonk, Chief Economist at Mesirow Financial, thanks so much.

SWONK: Thank you.

About the author

Diane Swonk is chief economist with Mesirow Financial, based in Chicago.

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