As if hanging on to their jobs wasn't
enough of a worry, Bay Area residents now have to wrestle with sharp
increases in the cost of living.
Consumer prices in the Bay Area have jumped 5.8 percent in
the past year, and 0.6 percent in the past two months alone. Dramatic
increases in the price of shelter and gasoline helped to fuel the rise in
the cost of goods and services in the region, according to a government
report released Wednesday.
Nationwide, consumer prices have risen 0.4 percent in the
past two months, including 0.3 percent in April. Compared to prices in
April 2000, consumer prices around the country have risen about 3.3
percent. But that rate of increase is far lower than in the Bay Area.
Average Bay Area housing costs, both rental and owned, rose 1.9 percent
over a two-month period ending in April. And housing costs are up 10.1
percent compared with April 2000, the Bay Area office of the Bureau of
Labor Statistics reported.
Gasoline prices are also a headache lately. The cost of gasoline has
risen a scant 2 percent during the past year, the government agency
disclosed. But during the most recent two-month reporting period, the cost
of gasoline soared 10.4 percent.
"Shelter is the big story for the Bay Area," said Nancy Treadwell,
regional economist with the Bureau of Labor Statistics in San Francisco.
"But in the last two months, we also have had a relatively large increase
in gasoline prices."
The big danger is that rising inflation could chew into household
budgets. And as fixed costs start to rise, consumers may have less to
spend on items they might like to have but don't necessarily require. That
could cause a downward spiral in economic activity in the Bay Area and
California, said Steven Wood, chief economist with FinancialOxygen, a
Walnut Creek-based consulting firm.
"If you're spending all that money for gasoline, housing and
electricity, something has to give, and that will be other types of retail
spending," Wood said. "We will see fewer restaurant meals, movies,
spending on big-ticket items, other types of discretionary spending."
Even worse is the prospect that rolling blackouts could hamper or even
cripple some production around California during the hot months. All of
that can shackle consumer spending, which accounts for two-thirds of the
economy.
"We can fall into recession in the Bay Area during the summer," Wood
said.
Oxygenated gasoline designed to reduce automobile pollution has been
one of the big factors that has driven gas prices higher, according to
Wood.
"We have created a distribution nightmare for oxygenated fuels," Wood
said. "If there were a national standard for the gasoline we use, that
would shave several cents a gallon off the cost."
For now, however, California faces the foreboding prospect of rising
gasoline and electricity prices at the same time thousands of residents
may lose their jobs in the coming months.
"Because of all the body blows, the risk of recession here is greater
than the rest of the country," said Gary Schlossberg, vice president and
senior economist with Wells Capital Management in San Francisco.
Still, with the nationwide inflation rate well under control, market
watchers think the Federal Reserve has a free hand to continue to slash
interest rates in hopes of stimulating the sluggish economy, said Frank
Catalano, a registered principal with American Investors Co. in Walnut
Creek. That has laid the groundwork for an economic and stock-market
rebound, Catalano says.
"I'm feeling very comfortable with the longer-term outlook now,"
Catalano said. "The Fed has lowered interest rates as aggressively as they
can. And there is the understanding that they will lower rates again. We
couldn't ask for more."
George Avalos covers the economy. Reach him at 925-977-8477 or gavalos@cctimes.com.
