DJ Rising Electricity Prices Could Be Wild Card In July CPI ,
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	From:  "Pergher, Gunther" <Gunther.Pergher@dowjones.com>                      
     08/11/2000 09:59 AM
	

To: "Pergher, Gunther" <Gunther.Pergher@dowjones.com>
cc:  (bcc: Carla Hoffman/PDX/ECT)
Subject: DJ Rising Electricity Prices Could Be Wild Card In July CPI 




16:55 GMT 11 August 2000 =DJ Rising Electricity Prices Could Be Wild Card In
July CPI

   By Henry J. Pulizzi
   Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)--Now that gasoline prices are finally settling down,
economists say another energy component could prove to be a spoiler on the
government's main consumer inflation gauge.
Amid a shifting regulatory landscape and typical summertime price increases,
the nation's utilities appear to be boosting consumers' electricity bills
enough to skew the Labor Department's July consumer price index. Those gains
would partly offset the anticipated favorable influence of recently
declining gas prices.
"There is a real chance of starling increases in electricity prices over the
next month or two, thanks mostly to the bungled deregulation of the
industry," Ian Sheperdson, chief U.S. economist at High Frequency Economics
in Valhalla, N.Y., wrote in a recent report. "All the anecdotal evidence
from the West and East Costs suggests consumers are reeling from sudden
double - and in some cases triple - digit percentage increases in their
bills."
First Union economist Mark Vitner agreed: "It is a potential trouble spot,
it is a particular problem in the West." In California, where no new power
plants have been built in a decade, the private companies that purchased
plants from the state's utilities have been raising prices in response to
strong demand and dwindling supply.
The impact of the cost increases will be revealed Wednesday, when the Labor
Department releases the July CPI next Wednesday.
Economists generally expect the figures to point to a continued tame
inflation scenario - a 0.1% overall monthly increase, featuring declining
clothing, computer and gas prices is forecast. Labor Department economist
Patrick Jackman said recent statistics suggest gas prices fell 3% to 3.5%
last month. That would mark a departure from June, when soaring prices at
the nation's gas stations contributed to a big 0.6% spike in the CPI.
Rising Demand, Surging Prices
But electricity, which represents 2.5% of the entire index, will be a wild
card in the coming report.
Electricity costs usually rise in the summer as consumers pay more for the
juice that powers their air conditioners. This summer is no different,
Vitner said, adding that utilities have even more pricing power than normal.

"Overall demand for electricity has been rising. All this high-tech
equipment uses a lot of electricity," Vitner said.
Indeed, prices rose 0.8% in June after seasonal adjustments. Before those
adjustments, prices surged a whopping 6.6% during the month.
As for a July increase, Jackman said "it certainly is a possibility. The
question is how are the seasonal factors are going to handle it."
Sheperdson, however, believes it's clear that electricity costs are on the
rise. "Three factors are driving prices higher," he said. "First, flaws in
the auction system set up after deregulation effectively allow the
generating companies to manipulate prices at times of high demand. Second,
the economic boom means that periods of high demand are much more common
than was anticipated at the time of deregulation, so generators have more
opportunity to extract premium prices from distributors and, hence,
consumers. Third, little new electricity-generating capacity has been added
in recent years."
Producer prices, which Sheperdson says provide a good guide to movements in
the CPI, may offer ominous insight into the potential consumer electricity
price gains. Residential electric power prices on the producer level rose
faster in July than at any point since January 1991.
And they aren't expected to slow down anytime soon. August could be
especially problematic because higher electricity costs will coincide with
another pickup in gas prices and continued gains in natural gas prices,
Vitner said.
"We have no idea how far the CPI measure of residential electricity prices
could rise, but there must be a good chance that substantial increases will
be recorded," Sheperdson said. "With natural gas prices also climbing again,
following a dip in July, it may take a while before energy ceases to push
inflation higher."
-Henry J. Pulizzi; Dow Jones Newswires; 202-862-9255;
henry.pulizzi@dowjones.com Copyright (c) 2000, Dow Jones & Company Inc

G_nther A. Pergher
Senior Analyst
Dow Jones & Company Inc.
Tel.  609.520.7067
Fax. 609.452.3531

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