Despite remaining relatively stable for the first half of May, gasoline prices rose about 5 percent heading into Memorial Day weekend, pushing overall transportation costs up 1.0 percent for the month. According to AAA, increased demand leading into the heavily traveled weekend partially explains the price increase, and a range of expected and unexpected refinery issues tightened supply across the Midwest more than analysts had expected. Gasoline prices are expected to drop in June as refinery maintenance winds down and plants resume full production, giving consumers some relief at the pump for at least a few months before the end of the summer. Gasoline prices tend to rise towards the end of summer due to potential production disruptions during the hurricane season and tight supply as refineries prepare to switch from summer blend to winter blend gasoline.
In spite of the noted increases in transportation prices in recent months, transportation costs are actually down 2.7 percent year-over-year. In fact, over the past three months consumers have paid 5 percent less on average for both gasoline and airfare as they did during the same period in 2012. These lower year-over-year prices have a clear impact on the Wasatch Front’s twelve-month inflation rate. The Zions Bank Wasatch Front CPI is typically marked by an annual inflation rate of about 2.9 percent, but the index’s current year-over-year rate rests at just 1.5 percent, despite the fact that no category besides transportation in the Wasatch Front CPI is down year-over-year.
Housing prices, which include rent, hotel room rates, and the purchase of common household appliances, increased 0.2 percent in May. Since housing accounts for approximately 35 cents out of every dollar consumers spend, the seemingly minimal increase actually has a large impact on consumer purchasing power. Notably, hotel have rates increased nearly 2 percent this month —an important indicator for the state’s multi-billion dollar tourism industry. According to Utah’s tourism office, the industry continues to grow at a relatively fast rate, primarily due to the state’s ability to attract visitors year-round.
In other categories, prices for clothing increased 0.8 percent due to an increase in the cost of children’s apparel, and prices for education and communication (up 0.7 percent) rose as institutions across the state increased tuition. Food at home prices fell 0.8 percent due to a decrease in the price of certain meats and produce. Additionally, the prices for recreation (up 0.3 percent) and other goods and services (up 1.2 percent) increased, while prices for medical care fell slightly (down 0.1 percent). Food away and utility prices remained unchanged from April to May.
“Travelers were hit with higher than expected gas prices last month,” said Scott Anderson, Zions Bank president and CEO. “Still, the overall economy continues to show positive improvement across several major categories — so despite consumers having slightly less discretionary income last month, positive signs in the housing and labor markets should outweigh any concerns around an increase in gasoline prices.”
Analysis and data collection for the Zions Bank CPI and the Zions Bank Consumer Attitude Index are provided by the Cicero Group. The Cicero Group is a premier market research firm based in Salt Lake City. The Zions Bank Utah Consumer Attitude Index will be released June 25, 2013.