Pieces of Eight: News Bulletins from the Eighth Federal Reserve District

Intermediate Materials Prices and the CPI: Cause and Effect?

Do price hikes at the intermediate materials level translate into increases in consumer prices? And if so, when? To find out, St. Louis Fed economist Kevin Kliesen plotted the year-on-year percentage changes in the consumer price index (CPI) and the Producer Price Index (PPI) for intermediate materials from 1948 to 1993.

Kliesen reported in the St. Louis Fed's National Economic Trends (NET) that the two price indicators moved similarly over the 45-year period. Kliesen cautions that the apparent relationship should not be relied upon too heavily because intermediate price levels have proven to be unreliable indicators of future inflation in the past.

"It is by no means a done deal," Kliesen says. "For example, we haven't yet seen consumer prices rise to the same degree as the recent acceleration in intermediate materials prices for chemicals, textiles or plastic."

Recent increases in the price of another intermediate material—paper—have had no effect on the price of NET—it's still free. For a copy of the December issue, contact Debbie Dawe of our Public Affairs office at (314) 444-8809.

St. Louis Fed Takes its Show on the Road

Jim Hanna of Hanna Oil & Gas Co. thinks they're a great idea. "It gives us guys—the blue collar so to speak—an idea of what's happening in this area and this region," he says of the St. Louis Fed's Regional Economic Forums. This is especially important for Hanna who, although he describes himself as "not a real banker," must provide solid advice to Merchants National Bank, where he is a board member. Hanna was one of nearly 200 bankers, business and community leaders who attended one of five economic forums hosted by the St. Louis Fed last year. Forum participants listened to presentations from economists and Banking Supervision officers before engaging in a dialogue about national and regional economic issues. If you're interested in taking part in one of this year's forums, call Bernie Berns of our Public Affairs office at (314) 444-8321.

Where Have All the Bank Deposits Gone?

As the spread between returns on bank deposits and mutual funds widened during the 1990s, American households shifted their money to long-term investments like bond and equity mutual funds.

When interest rates started their upward ascent last year, however, the value of existing bonds plunged, leading analysts to predict a rebound in the growth of M2, which includes savings deposits, but not bond and equity mutual funds.

Instead, writes St. Louis Fed economist Richard Anderson in the December issue of Monetary Trends, M2 has been stagnant. "It's weaker than we would have expected given market rates and income," he explains.

One reason could be that households are more sophisticated than many analysts had believed, Anderson says, and were fully aware of the short-term fluctuations that long-term assets experience. "Households are not as naive as some economists paint them," he says.

Furthermore, Anderson says, some households may be reluctant to return to their previous investment patterns after they have learned about newer, more sophisticated options. For a copy of the issue in which Anderson's report appears, call Debbie Dawe of our Public Affairs office at (314) 444-8809.

Growth in Per Capita Personal Income: 1991 to 1992