A DOW JONES NEWSWIRES COLUMN
NEW YORK — As indicated by the May consumer price index, inflation remains the no-show of this recovery.
The top-line CPI has fallen for two months in a row, dragged down by falling energy prices. Even excluding food and energy, the core CPI has risen just 0.9% over the past year.
Underneath the quiet surface, however, are signs of “stealth inflation.” Companies and industries are trying to slip in price increases without appearing to be hiking prices.
It’s a way to pump up revenues at a time when demand growth remains modest. The incidents should become more numerous when the recovery becomes more durable and businesses test the waters when it comes to raising prices.
Take airfares. Even as they advertise bargain fares, airlines have instituted surcharges for summer travel. The fee can add up to $30 per ticket (meaning an extra $60 for a round trip). Just like baggage fees, the surcharge is a way to raise fares without having to raise the listed ticket prices.
The industry is taking advantage of supply and demand. Airlines have cut back on routes, so consumers wanting to travel far have little choice but to pay up. Plane tickets were up almost 14% in the 12 months ended in May, according to the CPI report.
Meanwhile, AT&T–the exclusive provider of wireless service for Apple iPhones and iPads–has decided to jettison its unlimited mobile data plan and replace it with a tiered plan. Under the new plan, low-volume users will pay $15 a month while higher-volume users will pay $25, and very heavy users will shell out more for extra charges.
The telecommunications giant says 98% of its customers will see lower monthly charges. But as consumers increasingly use their smartphones to watch movies, search the web and get driving directions, the tiered pricing could push customers into paying more than they do now.
Lastly, The Wall Street Journal reported Thursday that some banks are ending free checking and are adding monthly fees for accounts with low balances or little activity.
As the Journal story says, banks are charging for what used to be free in order to recoup revenues lost to new banking regulations, such as the end of overdraft charges.
The checking deposit fees will lift bank revenues. For depositors, however, it means the price of banking just went up.
Each incident of stealth inflation will account for a small share of the price changes that occur each month. Together, they probably won’t be large enough to offset the drag on the price indexes coming from the weakness in the shelter component that commands a huge 32% share of the CPI.
The examples, however, are signs that businesses are seeking ways to raise their prices. Good for revenues and profits–but consumers who fly, use cellphones or bank will face creeping inflation.
–(Kathleen Madigan, a special writer, is the primary author of the Big Picture column. She covered the economy for over two decades at BusinessWeek and Wall Street firms.)