By John Byczkowski
The Cincinnati Enquirer

Olifta Riddick-Perry of Avondale just got a lesson in inflation.

As she loaded groceries into her car last week at a Meijer supermarket in Oakley, she complained she's seeing prices rise on "everything - the eggs, the chips and cookies that my children like, laundry products." She was shocked to see greens are now $1.70 a bunch.

She used to be able to fight back by shopping around, but gas is up to $1.85 a gallon, so driving between Meijer, Sam's Club and Biggs is getting expensive.

"I see more people at Goodwill than Carter's got liver pills," she said.

Prices are rising everywhere.

The wholesale price of milk has hit a historic high of $3.45 a gallon. Beef is up, eggs are up. Procter & Gamble Co. said Friday it was increasing prices on pet foods, coffee and paper products because of rising raw materials costs. AK Steel of Middletown last week tacked on a $120-per-ton surcharge on steel.

LaRosa's lucked out. Last year the Cincinnati pizza chain bought cheese futures to hedge against rising provolone prices. Those futures - contracts that lock in the price over time - have shielded LaRosa's from an increase in cheese prices of 50 cents a pound since January.

The futures "saved our bacon," said Peter Buschani, LaRosa's director of marketing. But the contracts run out in June, and there's no relief in pricing seen until at least autumn. What happens then to the price of a pie? "If it became clear that (the price of cheese) wasn't going to flatten out, I think a lot of pizza chains won't have a choice" but to raise prices, Buschani said.

But many economists question whether this is really inflation. Even if it is, they say it's not necessarily a bad thing. A Blue Chip Economics survey in April showed economists expect inflation this year of 1.9 percent, up from a forecast of 1.6 percent in February.

But that survey was done before the release of March's Consumer Price Index on April 14, which showed inflation so far this year running at an annual rate of 5.1 percent. The University of Michigan's consumer confidence survey released Friday showed consumers expect inflation this year to top 3 percent.

In addition, economists believe the price index overestimates inflation by 1 percentage point, so a 2 percent rise in the index indicates real inflation of just 1 percent.

"To me, 2 percent inflation represents healthy demand," and that's a relief after three years of weak economic growth, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. Just a year ago, the Federal Reserve was concerned about deflation, that the economy was so weak prices would spiral downward.

"How can you go from worrying about deflation to being worried about an inflationary spiral?" Dhawan said. He said he won't worry about inflation until both hiring and industrial production recover.

Economic convergence

The reasons for the rise in prices are almost too many to catalog.

The Iraq war has pressure on oil and gas prices. A weak dollar means import prices are rising and American companies can push up prices, worrying a little less about their foreign competitors. A rapidly growing economy in China and a worldwide economic recovery created growing demand for almost everything.

The pressures on food prices are a little more specific.

The mad cow disease scare in Canada cut beef supplies, pushing up beef prices. That led dairy farmers to sell their bossies for burgers, causing shortages and higher prices for milk and cheese. Likewise, avian flu outbreaks have affected poultry and egg prices.

Add them together and all those rising prices put pressure on interest rates, affecting costs of housing, cars and other goods.

The increases seem to be coming all at once. A survey released Friday by the National Association of Purchasing Management-Cincinnati chapter found local companies reported paying higher prices last month for diesel fuel, copier toner, steel, plastic resin, vinyl, motors, wire, aluminum, asphalt paint, copper and natural gas.

At Frisch's Big Boy Restaurants, the ups and downs of food prices usually balance out, but this year costs across the board are up 10 percent. "Eggs are terrible. Cheese is awful. Milk makes the price of gasoline look like a bargain," said CEO Craig Maier.

The Cincinnati-based restaurant chain pushed through a 1.6 percent increase in prices in February, but Maier said that doesn't cover his higher costs. To stay profitable, Frisch's has been working to increase sales and save money. The company recently changed to a lower-cost shortening supplier, and now requires employees to buy their own pants for their uniforms. Those might seem like little things, he said, but bottom line, "little things like that are not little to us."

Not worried

Economists, however, believe these price increases are mostly one-time events. Higher prices for gas and food "are real costs that you and I have to pay," said Sung Won Sohn, chief economist at Wells Fargo & Co. But, he added, "those are not worrisome because they're not working into a price-wage spiral," like the one that fed double-digit inflation a quarter-century ago.

Gregory Hess, an economist at Claremont McKenna College in California and a member of the Fed-watching Shadow Open Market Committee, sees no sign of inflation becoming a problem. "Overall money growth has not been that fast, and we've seen some price increases, but not a general acceleration in prices," he said.

He said he believes the Fed governors - who meets Tuesday on interest rates - probably haven't made up their minds on these price increases. "I don't think they're really strongly willing to conclude what it is," so they'll wait for more data before taking action.

E-mail johnb@enquirer.com