Inflation remained low during 1984 Essay

Inflation remained low during 1984 In 1984, a variety of factors reinforced each other to holdinflation substantially in check as was the case in 1983: Good harvests for many agricultural crops, both in the UnitedStates and abroad; Continued weakness in world commodity markets for energy and manybasic industrial materials; The unusually high value of the U.S. dollar in internationalcurrency markets, which encouraged a surge of imports that avertedproduction and labor bottlenecks by siphoning off much of the upswing indomestic demand; Weak export demand for most U.S.-made goods, also caused in largepart by the strength of the dollar; An excellent year for domestic capital investment projectsdesigned to expand capacity with demand; Solid U.S. productivity improvements and general wage restraint,both of which held down rises in unit labor costs; American monetary policies which gave high priority tomaintaining a low rate of inflation; and The slowing of the domestic economic expansion in the latter halfof the year.

As a result, inflation in 1984 at both the retail and the producerlevels rose at a rate of less than 5 percent for the third consecutiveyear. This moderate performance coincided with the second year ofstrong economic recovery from a recession that ended in late 1982. The 4.0-percent increase in the Consumer Price Index for All UrbanConsumers (CPI-U) for the 12-month period ended in December 1984followed increases of 3.9 percent in 1982 and 3.8 percent in 1983. (Seetable 1.

) While the overall increases were virtually the same in eachof the 3 years, the composition of the change was different each year.Specifically, the moderation became more broadly based with eachsuccessive year. In 1982, declines in energy commodities– motor fuel,fuel oil, coal, and bottled gas–and small increases in grocery storefoods and shelter costs were largely responsible for reducing theall-items increase from 8.9 percent in 1981 to 3.9 percent in 1982.

Thefollowing tabulation shows the annual increases for selected groupingsof CPI expenditure classes, December 1981-84: After rising 8.5 percent in 1981, the combination of the food,energy commodity, and shelter components decelerated sharply, increasingonly 1.3 percent in 1982. All other items in the CPI also moderatedthat year, but not so sharply, posting an average increase of 6.6percent after advancing 9.5 percent in 1981.

In 1983, the energycommodities, grocery store foods, and shelter grouping advanced 2.4percent while all other items in the CPI slowed down further to a4.8-percent increase. By 1984, the variance in the behavior of the twogroups had further diminished: The energy commodities, grocery storefoods, and shelter combination increased 3.5 percent, while all otherCPI items advanced 4.

3 percent. The Producer Price Index (PPI) for Finished Goods moved up 1.8percent from December 1983 to December 1984, following an even smallerincrease of 0.

6 percent in 1983 and a 3.7-percent advance in 1982.Consumer food price increases accelerated modestly, from a 2.3-percentincrease in 1983 to 3.8 percent in 1984. Prices for finished energygoods continued to drop (-4.1 percent), although by less than half asmuch as in 1983: -9.2 percent.

Prices received by producers of otherkinds of finished goods rose 2.2 percent in 1984, slightly more than the1.8-percent increase in 1983 but considerably less than 1982’s 4.9percent. (See table 2.) The 1984 inflation record at earlier stages of processing was alsoencouraging.

The Intermediate Goods Price Index increased 1.3 percent,compared with 1.8 percent a year earlier. This index rose at aseasonally adjusted annual rate of 3.

2 percent in the first half of1984, when the general economic expansion maintained the exceptionallyfast pace of 1983. The ensuing slowdown in the economy was reflected inthe 0.6-percent rate of decline in this index during the latter half ofthe year. Crude material prices, which had advanced 4.7 percent fromDecember 1982 to December 1983, fell 1.3 percent in 1984.

This reversalresulted from drops in the indexes for foodstuffs and sensitiveindustrial materials, both of which had advanced substantially during1983. In this article, we will next examine price changes during 1984 forall major expenditure categories within the Consumer Price Index. Thenwe will focus on price changes for those components of the ProducerPrice Index which do not overlap with categories of the CPI. (Pricemovements for consumer energy goods–gasoline, home heating oil, andnatural gas–are discussed at both the retail and the producer marketlevels because of important distinctions between what affects the CPIand what affects the PPI for those items.) Consumer prices: food and housing Food and beverages. The food and beverage component of the CPI,whose deceleration predated the overall slowdown in prices, continuedits moderate behavior in 1984, increasing 3.7 percent. For the fourthconsecutive year, grocery store food prices rose less than 4 percent.

The 3.6-percent rise in 1984, however, was nearly double the 1983increase. While all major grocery store food groups contributed to theacceleration, a turnaround in meat prices was primarily responsible.Following declines in 1983, beef prices rose 3.8 percent and porkprices, 6.

0 percent in 1984. The drought in the summer of 1983 had amajor impact on those prices in both years. Higher feed costs inducedowners to market their livestock early, which resulted in meat pricereductions in 1983. These declines were interrupted in early 1984, whenharsh winter weather restricted supplies to retail markets and caused atemporary jump in prices. The effect of accelerated slaughterings in1983, however, led to some liquidation of stocks, lower marketings, andhigher prices for pork by early summer and for beef, by the fourthquarter. By contrast, poultry and egg prices, reflecting the effects ofthe drought and avian influenza, rose sharply in the second half of 1983and in early 1984 before declining in the last 3 quarters of 1984. The 1983 summer drought and winter freeze played a major role inthe 1984 price movement for fresh vegetables and fruits. Drought-reducedharvests caused fresh vegetable prices to rise sharply in the fall of1983 and early 1984 before declining in the remainder of 1984.

By theyear’s end, prices were 6.9 percent below the December 1983 level.Fresh fruit prices, which declined in 1983, increased 22.6 percent in1984. The late 1983 freeze, which severely damaged orchards as well asthe early 1984 citrus crop, is likely to have a long-run impact onprices. Prices for dairy products rose 3.4 percent in 1984, followingincreases of less than 1 percent in each of the preceding 2 years.

Theintroduction of the U.S. Department of Agriculture’s DairyDiversion Program, which was designed to reduce milk production andgovernment support payments, contributed to the advance in milk prices.The indexes for cereal and bakery products, processed fruits andvegetables, and other foods at home all registered moderate increases in1984, which were nevertheless larger than in 1982 and 1983. Housing. The CPI-U housing index rose 4.2 percent in 1984,following a 3.5-percent increase in 1983.

Larger increases in the costsfor shelter and fuels and other ultilities more than offset the smallerrise in household furnishings and operations. Prices for fuel and otherutilities rose 4.2 percent in 1984, compared with 1.8 percent in 1983.The sharpest advance in the fuel and other utilities component was therise in telephone service charges, which coincided with the January 1,1984, restructuring of the telephone industry. Telephone services,which rose 3.6 percent in 1983, jumped 9.

2 percent in 1984 as localcharges soared 17.1 percent, intrastate toll charges increased 3.7percent, while interstate toll charges declined 4.3 percent. Fuel oil prices, which had decreased sharply during 1983 in thewake of the oil glut–down 10.9 percent–were unchanged in 1984, as oilprices remained stable amid sufficient supplies and moderate heating oildemands. The sharp increases which occurred during the bitter cold ofJanuary and February were offset by declines throughout the remainder ofthe year.

Charges for electricity rose 5.6 percent, following increasesof 3.2 percent in 1983 and 6.4 percent in 1982. Natural gas pricesincreased less than a percentage point (0.

8 percent) in 1984, well belowthe 5.2-percent increase in 1983; this was their smallest increase since1967. In the 9-year period ended in 1982, annual increases in naturalgas prices averaged 17.1 percent a year and never dropped below adouble-digit level.

The cessation of take-or-pay contracts,1 togetherwith court-ordered refunds to compensate for overcharges based uponthese contracts, helped hold down the 1984 increase. Shelter costs rose 5.2 percent in 1984. Renters’ costs rose5.

9 percent, up slightly from the 5.1-percent rise in 1983.Homeowners’ costs also rose slightly more in 1984 (5.1 percent)than they had in 1983 (4.5 percent). However, home maintenance andrepair prices slowed from a 5.0-percent increase in 1983 to a2.

7-percent rise in 1984, as charges for maintenance and repair servicesmoderated substantially. The 1.5-percent increase in the household furnishings andoperations index was the smallest annual increase since the series beganin 1967. The index for housefurnishings was up only marginally, asprice increases in textile housefurnishings (4.

2 percent), furniture andbedding (1.9 percent), and other household equipment (1.1 percent) werenearly offset by price declines for household appliances, televisions,and sound equipment. Prices for housekeeping supplies advanced 3.

0percent and services, 2.4 percent. Transportation and medical care Transportation. Transportation costs rose 3.1 percent in 1984,following increases of 3.9 percent in 1983 and 1.7 percent in 1982. The9-percent advance over the past 3 years compares with a 50-percentincrease for the 3-year period ended in 1981.

The turnaround ingasoline prices and the smaller increases in automobile prices werelargely responsible for the slowdown. Although used car prices decelerated substantially in the last halfof 1984, the sharp 7.0-percent rise for the year accounted for nearlyhalf of the total transportation increase. Larger inventories,associated with the increase of trade-ins from strong new car purchases,resulted in downward pressure on used car prices.

New car prices roseonly 2.5 percent during 1984, the third consecutive small annualincrease. The moderate increases in 1983 and 1984, unlike that in 1982,coincided with expanding production and sales. Again exerting downward pressure on the transportation index, motorfuel prices decreased 2.

4 percent during 1984. This decline wasslightly greater than 1983’s 1.7-percent drop, which included the5-percent Federal excise tax increase, but it was less than the6.5-percent decline in 1982.

From their peak level of March 1981,gasoline prices had declined 13.2 percent by December 1984. Among other automotive expenses, automobile finance charges rose6.

8 percent in 1984, after registering sharp declines in each of thepreceding 2 years. The cost of automobile insurance–up 7.9percent–continued to advance. Tire prices, however, declined for thethird consecutive year, and automobile maintenance and repair costs–up3.

2 percent–registered their smallest annual increase since 1966. The public transportation component, which had risen 3.8 percent in1983, advanced 6.4 percent in 1984. Airline fares, fluctuatingthroughout the year, showed a net increase of 6.5 percent. Intercity busfares rose sharply (12.

3 percent). By contrast, taxi fares rose only1.2 percent, the lowest increase since 1964 when the taxi fare index wasfirst published. Medical care. The 6.1-percent advance in the cost of medical carein 1984 followed an increase of 6.4 percent in 1983 and increases of 10percent or more in each of the preceding 4 years. The slightdeceleration in 1984 reflected a slowdown in prices for medical careservices, while prices for medical care commodities rose at the samerate as in 1983.

Within the medical care service component, charges forphysicians’ services rose 6.0 percent, the smallest increase in 11years. Charges for dental services and other professional services alsodecelerated in 1984. Following a 9.

3-percent increase in 1983, thecosts of hospital rooms rose 7.4 percent in 1984, the smallest since1973. Within the medical care commodities component, the index forprescription drugs rose 9.9 percent, about the same as in 1983. Pricesfor nonprescription drugs and medical supplies decelerated slightly in1984, increasing 5.4 percent. Apparel and other expenses Apparel. The index for apparel rose 2.

0 percent in 1984, decliningin the first half of the year before rising sharply in the thirdquarter. The introduction of higher-priced fall merchandise wasresponsible for the third-quarter spurt. Clothing sales and promotionswere prevalent throughout the rest of the year. Small-to-moderate priceincreases were recorded for most men’s, boys’, women’s,girls’, and infants’ clothing items and for footwear.

Theindex for jewelry and luggage declined slightly, reflecting a decline inprices for precious metals. Charges for apparel services (such aslaundering and dry cleaning), which rose 4.9 percent in 1984, continuedto declerate from their peak level increase of 12.5 percent in 1978.

Most of the 1984 advance was due to higher prices for dry cleaningservices. Entertainment. The index for entertainment, which had deceleratedyearly from 1980 to 1983, rose slightly faster in 1984, increasing 4.2percent.

The cost of entertainment services rose 5.7 percent in 1984.Admission fees for movies, theaters, sporting events, and other forms ofentertainment rose 7.5 percent on average. Increased charges formembership to fitness centers, health centers, and fees for participantsports averaged 5.7 percent. The index for entertainmentcommodities–up 3.3 percent–also rose slightly more than in 1983,principally because of larger price increases for photographic suppliesand equipment.

Prices for reading materials, however, slowedsubstantially in the past 2 years, reflecting a moderation in printingcosts. The 4.0-percent increase in 1984 was the smallest advance sincethis series was introduced in 1977.

Prices for sporting goods andequipment rose 3.4 percent, as a 5.3-percent increase in sports vehicleswas partially offset by near-stable prices for bicycles and sportingequipment. Other goods and services. The other goods and services indexincreased 6.

1 percent in 1984, the smallest annual increase in thiscategory since 1976. Increases in personal and educational expenses (up9.1 percent) accounted for half of the 1984 increase in this component.Tuition and other school fees increased 10.

1 percent in 1984 afterhaving doubled over the past 7 years. Prices for school books andsupplies also continued to advance–up 8.1 percent–but by less than inother recent years. The index for personal expenses rose 6.

5 percent,substantially less than in any year since this series was introduced in1977. The deregulation of banks increased competition for depositorsand coincided with the smaller increases in charges for bankingservices. The index for tobacco rose 4.9 percent in 1984, following increasesof 20.

1 in 1982 and 10.1 percent in 1983. Legislation passed in thesummer of 1982 and effective January 1, 1983, doubled the Federal excisetax on cigarettes from 8 to 16 cents per pack.

Sharp increases wererecorded from September 1982 through January 1983 as manufacturersimmediately began phasing in the effect of the tax increase. In 1984,two moderate increases in wholesale prices for tobacco were passed on atretail. Producer prices: energy trends Prices received for domestic energy products decreased in 1984,following more substantial and pervasive declines in 1983. The indexesfor both finished energy goods and crude energy materials continued tofall, although not nearly so much as in 1983; prices for intermediateenergy goods were almost unchanged, following 2 consecutive years ofdecline. Major influences on energy prices in 1984 included unusualweather patterns, climbing foreign exchange rates, heavy inventories ofcrude oil and refined petroleum products, and the decontrol of naturalgas. (Prices for major refined petroleum products and natural gas arelagged 1 month in the Producer Price Index.) The index for finished energy goods decreased 4.1 percent fromDecember 1983 to December 1984.

Indexes for gasoline and home heatingoil–both of which had fallen at double-digit rates during 1983–fellagain but by considerably less. These declines largely reflected thegeneral oversupply of petroleum and intense competition among refinersto boost their market share. Natural gas prices rose slightly, mostlyin response to earlier regulatory adjustments and increased sales ofunregulated “new’ gas.

Natural gas is now essentiallycompetitive with other fuels, as evidenced in declines in the naturalgas index in the last 4 months of 1984. The Producer Price Index for intermediate energy goods wasvirtually unchanged in 1984, as price increases for most refinedpetroleum products were largely offset by an advance in the index forelectrix power. Extreme weather patterns in both summer and wintercaused users to increase electricity consumption. The increased costs,particularly for fuels for generating this additional power, were passedon to consumers. Prices for residual fuel moved slightly higher in1984, when electric utilities opted for this fuel to meet some of thesurge in demand during severe weather. Prices continued to decline forliquefield petroleum gas, kerosene, jet fuel, and diesel fuel,reflecting the oversupply of such fuels.

The PPI for crude energy moved down 1.0 percent in 1984, afterfalling 4.6 percent a year earlier.

Prices for domestic crude petroleumfell 3.2 percent, much less than in other recent years. As in 1983,continued global surpluses in energy supplies frustrated attempts by theOrganization of Petroleum Exporting Countries (OPEC) to maintain pricelevels. The index for coal edged up just 0.

8 percent. Although coalconsumption grew about 8 percent in 1984, producer stockpiles were upsignificantly over the year in anticipation of a strike that nevermaterialized. Capital equipment Business spending on new plant and equipment surged 13 percent in1984, the largest advance in 18 years. This increase was due toenhanced after-tax returns on investment and widespread optimism aboutthe durability of the general expansion in the economy. Nevertheless,the Producer Price Index for capital equipment continued to rise onlymodestly –2.1 percent from December 1983 to December 1984, roughly thesame as in 1983. Moreover, prices of few major products moved up morethan 4 percent during the year.

As in 1983, intense competition fromimports was a major factor restraining inflation in this sector of theeconomy. Prices for machine tools rose about 4 percent, as orders anddomestic shipments were sharply higher than a year earlier, althoughstill well below prerecession levels. These types of machinery–key toindustrial automation–range from computer-controlled lathes toautomated presses that shape metal parts. The level of orders formachine tools is considered an indication of capital spending by theautomotive, appliance, aircraft, and other durable goods industries.2Imports controlled an unusually high share of the American market formachine tools, just as they had in 1983.

However, the recovery wasstrong enough in 1984 to allow increased sales by both domestic andforeign manufacturers of machine tools. Prices for heavy trucks rose 4.2 percent over the year, on thestrength of sharply increased sales of 0.26 million units from a low of0.18 million in 1983. These trucks range from medium-duty generaldelivery trucks to heavy-duty diesel tractor-trailers. The turnaroundin sales reflected the strong recovery in business investment in 1984.

Intermediate goods less foods and energy After accelerating moderately to a 3.0-percent increase in 1983,the Producer Price Index for intermediate goods other than foods andenergy eased somewhat, registering a 2.0-percent rise for the 12 monthsended in December 1984. The unusually strong pace of economic growthearly in the year enabled manufacturers to raise prices for many goodswhose prices had slumped during the preceding 2 years.

However, theseincreases were mitigated by the soaring foreign exchange value of theU.S. dollar, which severely curtailed export demand for American-madeindustrial goods, and prompted increased imports of products thatundercut domestic markets.

This unfavorable trade balance, plus aslowdown in the overall economy, caused prices for most intermediategoods to either rise more slowly or decline during the latter part of1984. Manufacturing materials. The index for nondurable manufacturingmaterials moved up 1.3 percent over the course of the year, about halfas much as in 1983. Following a small increase in 1983, prices forindustrial chemicals turned down 4.0 percent, reaching their lowestlevel since the end of 1980. Double-digit decreases occurred for vinylchloride monomer (used in making plastics), as well as for benzene andethylene, two widely used primary industrial chemicals. These resultedfrom lower crude petroleum costs, heavy import competition, anduncertain prospects in housing and automotive industries.

Lowerchemical prices tended to restrain prices for derivative products;synthetic fibers and synthetic rubber showed little net change over1984, the third consecutive year of flat or declining prices. Priceincreases also moderated for plastic resins, gray fabrics, finishedfabrics, leather, and inedible fats and oils (the last neverthelessstill advanced sharply). A major exception to the moderation of prices of intermediateindustrial goods was in the pulp and paper products industry, wherestrong demand kept manufacturers operating at over 95 percent ofcapacity throughout the year. Import competition was not very seriousbecause labor disputes reduced output in the Canadian paper industry;this also made it possible for U.S. paper producers to maintain exportlevels in spite of the strength of the U.S. dollar.

As a result, priceincreases accelerated over the year for woodpulp and paperboard(recording double-digit advances), as well as for paper. Reversing the 4.3-percent climb of the previous year, the index ofmaterials for durable manufacturing edged down 0.3 percent during 1984,led by nonferrous metals. The market for aluminum was not as strong asanticipated. American producers reacted to bulging inventories andsagging prices by closing several major smelting-refining operationsthat together accounted for almost one-tenth of total productioncapacity.

Aluminum prices continued to slide, nonetheless, ending theyear about 7 percent below 1983 levels. Copper prices declined for thefifth consecutive year. The urgent need for foreign exchange to repaydebts prompted Chile, Peru, and Zambia to continue heavy exports ofcopper in spite of minimal profits.

The American copper mining industrypetitioned the Federal Government for relief against imports, but wasdenied. Prices for lead, zine, gold, and silver also fell during theyear. Flat glass prices fell 5.1 percent, the first drop since 1972.This resulted from moderation in costs for inputs such as natural gas,as well as uncertainty in the construction industry. The steel mill products index did register an increase (2.2percent), but this was only half as much as in 1983. The import shareof the U.

S. steel market reached a record high of 26 percent during1984, up from a 21-percent share a year earlier, thereby displacing moreU.S. production.

Unlike the previous year, when decreases for tubularproducts and wire partly offset steep increases for sheets and strip,the principal steel categories showed uniformly modest advances in 1984.Moderate increases also took place for hardwood lumber and Portlandcement. Construction materials. The housing construction market began theyear on a very strong note, but then generally subsided as mortgageinterest rates climbed during the second and third quarters.Correspondingly, softwood lumber prices rose during the first quarter,but subsequently turned down, ending the year 5.2 percent below theDecember 1983 level.

Plywood prices likewise declined 4.6 percent overthe year. Continued expansion of lumber and plywood imports from Canada(now accounting for nearly 40 percent of the U.S. market) forced manyAmerican sawmills to go out of business during 1984. Prices for gypsum products (such as wallboard) continued the 1983rapid increase through the middle of 1984, as shortages persisted inseveral areas.

However, the gypsum industry finally began to catch upwith demand as the market softened around mid-year. Prices recededduring the second half, to finish the year only 2.1 percent above theDecember 1983 level, compared with the 27.1-percent surge in the prior12-month period. However, sizable increases for certain products tended to offsetthe moderation observed among other construction materials. Thoseshowing significant advances included wiring devices, asphalt felts andcoatings (formerly asphalt roofing), and prepared paint. This mixtureof price movements over 1984 resulted in a 2.

4-percent rise in theoverall index for materials and components for construction, the thirdconsecutive yearly advance of less than 4 percent. Grains and feedstuffs During 1984, the Producer Price Index for grains fell 12.8 percent,largely reflecting good harvests in the United States and abroad. Grainprices had climbed more than 20 percent a year earlier because of severedrought in many growing regions, combined with the impact of the acreagereduction prompted by the payment in-kind (PIK) program.

The PIKprogram was formally discontinued for most grains before the 1984growing season. Wheat prices rose moderately in the first half of 1984, partlybecause of good export demand, but then retreated in the second half asrecord harvests occurred in this country and several other majorproducing nations. The net result was a 4.6-percent drop in prices fromDecember 1983 to December 1984. Corn prices fell in almost every monthof the year, for a total decrease of 18.1 percent by the end of 1984.Expanded harvests after unusually low production in 1983, combined withstagnant foreign demand restrained by the continuing climb in the valueof the American dollar in international currency markets, were theprincipal influences behind the drop in corn quotations.

Prices forbarley, oats, and rye also moved down over the year. The index for oilseeds declined sharply over the year, largelybecause of reduced prices for soybeans and peanuts. Soybean quotationsfell more than 20 percent, reflecting increased domestic production,lagging demand from Europe and Japan, and increased competition fromArgentine and Brazilian exports. A record harvest, made possible by ayield 7 percent greater than the previous record yield in 1982, led to a17.

4-percent drop in peanut prices. Hay prices also moved down in theface of abundant alternative animal feeds and extensive pasture feedingfor much of the year. Price-sensitive industrial materials The Producer Price Index for crude nonfood materials other thanenergy, which measures changes in prices of raw industrial commoditiesusually responsive to cyclical shifts in general economic conditions,dropped 3.3 percent from December 1983 to December 1984.

Responding tothe vigorous recovery from the 1981-82 recession, this index had climbed15 percent in 1983 and continued to advance briskly (at a 7.4-percentrate) through the first half of 1984. The impact of the second-halfeconomic slowdown was evident in the behavior of the index for theseprice-sensitive industrial materials, which fell at a 13.0-percent ratefrom June to December. Scrap metals were especially prominent in the 1984 downturn.

Ironand steel scrap prices, which had soared more than 50 percent a yearbefore, decreased considerably during most of 1984, ending the year 5.2percent lower than their December 1983 level. The low output ofdomestic steel mills, which again were confronted with heavy imports ofsteel products, lowered ferrous scrap demand and prices. Increasedexport demand for ferrous scrap kept their prices from falling more.Nonferrous scrap prices dropped nearly 16 percent during 1984, indistinct contrast to the 36.7-percent upward jump in the preceding 12months.

Aluminum base scrap prices were nearly one-third lower by theend of the year than they had been in December 1983, reflecting theunexpected weakness in industrial demand for aluminum products. Like scrap metals, prices for raw cotton and crude natural rubberfell in 1984 after jumping substantially a year before. Raw cottonprices had climbed 23.

8 percent in 1983 and continued to rise in early1984. These prices fell through the rest of the year, however, to closewith a net loss of nearly 19 percent from December 1983 quotations.Demand for some cotton fabrics, notably corduroy and denim, wasconsiderably lower in 1984 than in other recent years, in partreflecting a saturation of consumer markets with blue jeans and otherapparel made from those fabrics. Minimal inventory rebuilding bydomestic mills, reduced export demand, and recent excellent harvests inthis country and China added further downward pressure on raw cottonprices. After advancing about one-third in 1983, crude natural rubberprices dropped nearly one-fourth in 1984, as world supplies expandedmore than enough to meet demand. Prices for cattle hides had surged 36.2 percent in 1983 andcontinued to advance in most of 1984. However, increased supplies andlagging foreign and domestic demand lowered fourth-quarter prices,resulting in a net rise of just 2.

3 percent from December 1983 toDecember 1984. Prices for leaf tobacco and for construction sand andgravel also rose in 1984, while indexes for logs and wastepaper decreased moderately. FOOTNOTES 1 Under long-term take-or-pay contracts, natural gas producersrequired pipelines to pay for a minimum quantity of gas whether it wasneeded or not. If demand for gas fell, a fixed charge under atake-or-pay contract had to be spread over a smaller volume, leading torate increases for the ultimate gas user. 2 See John Duke and Horst Brand, “Cyclical behavior ofproductivity in the machine tool industry,’ Monthly Labor Review,November 1981, pp. 27-34.

Table: Table: 1. Percent changes in selected consumer price indexes(CPI-U), 1982-1984 Table: 2. Percent changes in selected producer price indexes bystage of processing, 1983-84

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