Inflation remained low during 1984 Essay

Inflation remained low during 1984



In 1984, a variety of factors reinforced each other to hold
inflation substantially in check as was the case in 1983:



Good harvests for many agricultural crops, both in the United
States and abroad;



Continued weakness in world commodity markets for energy and many
basic industrial materials;



The unusually high value of the U.S. dollar in international
currency markets, which encouraged a surge of imports that averted
production and labor bottlenecks by siphoning off much of the upswing in
domestic demand;



Weak export demand for most U.S.-made goods, also caused in large
part by the strength of the dollar;



An excellent year for domestic capital investment projects
designed to expand capacity with demand;



Solid U.S. productivity improvements and general wage restraint,
both of which held down rises in unit labor costs;



American monetary policies which gave high priority to
maintaining a low rate of inflation; and



The slowing of the domestic economic expansion in the latter half
of the year.



As a result, inflation in 1984 at both the retail and the producer
levels rose at a rate of less than 5 percent for the third consecutive
year. This moderate performance coincided with the second year of
strong economic recovery from a recession that ended in late 1982.



The 4.0-percent increase in the Consumer Price Index for All Urban
Consumers (CPI-U) for the 12-month period ended in December 1984
followed increases of 3.9 percent in 1982 and 3.8 percent in 1983. (See
table 1.) While the overall increases were virtually the same in each
of the 3 years, the composition of the change was different each year.
Specifically, the moderation became more broadly based with each
successive year. In 1982, declines in energy commodities– motor fuel,
fuel oil, coal, and bottled gas–and small increases in grocery store
foods and shelter costs were largely responsible for reducing the
all-items increase from 8.9 percent in 1981 to 3.9 percent in 1982. The
following tabulation shows the annual increases for selected groupings
of CPI expenditure classes, December 1981-84:


After rising 8.5 percent in 1981, the combination of the food,
energy commodity, and shelter components decelerated sharply, increasing
only 1.3 percent in 1982. All other items in the CPI also moderated
that year, but not so sharply, posting an average increase of 6.6
percent after advancing 9.5 percent in 1981. In 1983, the energy
commodities, grocery store foods, and shelter grouping advanced 2.4
percent while all other items in the CPI slowed down further to a
4.8-percent increase. By 1984, the variance in the behavior of the two
groups had further diminished: The energy commodities, grocery store
foods, and shelter combination increased 3.5 percent, while all other
CPI items advanced 4.3 percent.



The Producer Price Index (PPI) for Finished Goods moved up 1.8
percent from December 1983 to December 1984, following an even smaller
increase of 0.6 percent in 1983 and a 3.7-percent advance in 1982.
Consumer food price increases accelerated modestly, from a 2.3-percent
increase in 1983 to 3.8 percent in 1984. Prices for finished energy
goods continued to drop (-4.1 percent), although by less than half as
much as in 1983: -9.2 percent. Prices received by producers of other
kinds of finished goods rose 2.2 percent in 1984, slightly more than the
1.8-percent increase in 1983 but considerably less than 1982’s 4.9
percent. (See table 2.)



The 1984 inflation record at earlier stages of processing was also
encouraging. The Intermediate Goods Price Index increased 1.3 percent,
compared with 1.8 percent a year earlier. This index rose at a
seasonally adjusted annual rate of 3.2 percent in the first half of
1984, when the general economic expansion maintained the exceptionally
fast pace of 1983. The ensuing slowdown in the economy was reflected in
the 0.6-percent rate of decline in this index during the latter half of
the year. Crude material prices, which had advanced 4.7 percent from
December 1982 to December 1983, fell 1.3 percent in 1984. This reversal
resulted from drops in the indexes for foodstuffs and sensitive
industrial materials, both of which had advanced substantially during
1983.



In this article, we will next examine price changes during 1984 for
all major expenditure categories within the Consumer Price Index. Then
we will focus on price changes for those components of the Producer
Price Index which do not overlap with categories of the CPI. (Price
movements for consumer energy goods–gasoline, home heating oil, and
natural gas–are discussed at both the retail and the producer market
levels because of important distinctions between what affects the CPI
and what affects the PPI for those items.)


Consumer prices: food and housing



Food and beverages. The food and beverage component of the CPI,
whose deceleration predated the overall slowdown in prices, continued
its moderate behavior in 1984, increasing 3.7 percent. For the fourth
consecutive year, grocery store food prices rose less than 4 percent.
The 3.6-percent rise in 1984, however, was nearly double the 1983
increase. While all major grocery store food groups contributed to the
acceleration, a turnaround in meat prices was primarily responsible.
Following declines in 1983, beef prices rose 3.8 percent and pork
prices, 6.0 percent in 1984. The drought in the summer of 1983 had a
major impact on those prices in both years. Higher feed costs induced
owners to market their livestock early, which resulted in meat price
reductions in 1983. These declines were interrupted in early 1984, when
harsh winter weather restricted supplies to retail markets and caused a
temporary jump in prices. The effect of accelerated slaughterings in
1983, however, led to some liquidation of stocks, lower marketings, and
higher prices for pork by early summer and for beef, by the fourth
quarter. By contrast, poultry and egg prices, reflecting the effects of
the drought and avian influenza, rose sharply in the second half of 1983
and in early 1984 before declining in the last 3 quarters of 1984.



The 1983 summer drought and winter freeze played a major role in
the 1984 price movement for fresh vegetables and fruits. Drought-reduced
harvests caused fresh vegetable prices to rise sharply in the fall of
1983 and early 1984 before declining in the remainder of 1984. By the
year’s end, prices were 6.9 percent below the December 1983 level.
Fresh fruit prices, which declined in 1983, increased 22.6 percent in
1984. The late 1983 freeze, which severely damaged orchards as well as
the early 1984 citrus crop, is likely to have a long-run impact on
prices.



Prices for dairy products rose 3.4 percent in 1984, following
increases of less than 1 percent in each of the preceding 2 years. The
introduction of the U.S. Department of Agriculture’s Dairy
Diversion Program, which was designed to reduce milk production and
government support payments, contributed to the advance in milk prices.
The indexes for cereal and bakery products, processed fruits and
vegetables, and other foods at home all registered moderate increases in
1984, which were nevertheless larger than in 1982 and 1983.



Housing. The CPI-U housing index rose 4.2 percent in 1984,
following a 3.5-percent increase in 1983. Larger increases in the costs
for shelter and fuels and other ultilities more than offset the smaller
rise in household furnishings and operations. Prices for fuel and other
utilities rose 4.2 percent in 1984, compared with 1.8 percent in 1983.
The sharpest advance in the fuel and other utilities component was the
rise in telephone service charges, which coincided with the January 1,
1984, restructuring of the telephone industry. Telephone services,
which rose 3.6 percent in 1983, jumped 9.2 percent in 1984 as local
charges soared 17.1 percent, intrastate toll charges increased 3.7
percent, while interstate toll charges declined 4.3 percent.



Fuel oil prices, which had decreased sharply during 1983 in the
wake of the oil glut–down 10.9 percent–were unchanged in 1984, as oil
prices remained stable amid sufficient supplies and moderate heating oil
demands. The sharp increases which occurred during the bitter cold of
January and February were offset by declines throughout the remainder of
the year. Charges for electricity rose 5.6 percent, following increases
of 3.2 percent in 1983 and 6.4 percent in 1982. Natural gas prices
increased less than a percentage point (0.8 percent) in 1984, well below
the 5.2-percent increase in 1983; this was their smallest increase since
1967. In the 9-year period ended in 1982, annual increases in natural
gas prices averaged 17.1 percent a year and never dropped below a
double-digit level. The cessation of take-or-pay contracts,1 together
with court-ordered refunds to compensate for overcharges based upon
these contracts, helped hold down the 1984 increase.



Shelter costs rose 5.2 percent in 1984. Renters’ costs rose
5.9 percent, up slightly from the 5.1-percent rise in 1983.
Homeowners’ costs also rose slightly more in 1984 (5.1 percent)
than they had in 1983 (4.5 percent). However, home maintenance and
repair prices slowed from a 5.0-percent increase in 1983 to a
2.7-percent rise in 1984, as charges for maintenance and repair services
moderated substantially.



The 1.5-percent increase in the household furnishings and
operations index was the smallest annual increase since the series began
in 1967. The index for housefurnishings was up only marginally, as
price increases in textile housefurnishings (4.2 percent), furniture and
bedding (1.9 percent), and other household equipment (1.1 percent) were
nearly offset by price declines for household appliances, televisions,
and sound equipment. Prices for housekeeping supplies advanced 3.0
percent and services, 2.4 percent.



Transportation and medical care



Transportation. Transportation costs rose 3.1 percent in 1984,
following increases of 3.9 percent in 1983 and 1.7 percent in 1982. The
9-percent advance over the past 3 years compares with a 50-percent
increase for the 3-year period ended in 1981. The turnaround in
gasoline prices and the smaller increases in automobile prices were
largely responsible for the slowdown.



Although used car prices decelerated substantially in the last half
of 1984, the sharp 7.0-percent rise for the year accounted for nearly
half of the total transportation increase. Larger inventories,
associated with the increase of trade-ins from strong new car purchases,
resulted in downward pressure on used car prices. New car prices rose
only 2.5 percent during 1984, the third consecutive small annual
increase. The moderate increases in 1983 and 1984, unlike that in 1982,
coincided with expanding production and sales.



Again exerting downward pressure on the transportation index, motor
fuel prices decreased 2.4 percent during 1984. This decline was
slightly greater than 1983’s 1.7-percent drop, which included the
5-percent Federal excise tax increase, but it was less than the
6.5-percent decline in 1982. From their peak level of March 1981,
gasoline prices had declined 13.2 percent by December 1984.



Among other automotive expenses, automobile finance charges rose
6.8 percent in 1984, after registering sharp declines in each of the
preceding 2 years. The cost of automobile insurance–up 7.9
percent–continued to advance. Tire prices, however, declined for the
third consecutive year, and automobile maintenance and repair costs–up
3.2 percent–registered their smallest annual increase since 1966.



The public transportation component, which had risen 3.8 percent in
1983, advanced 6.4 percent in 1984. Airline fares, fluctuating
throughout the year, showed a net increase of 6.5 percent. Intercity bus
fares rose sharply (12.3 percent). By contrast, taxi fares rose only
1.2 percent, the lowest increase since 1964 when the taxi fare index was
first published.



Medical care. The 6.1-percent advance in the cost of medical care
in 1984 followed an increase of 6.4 percent in 1983 and increases of 10
percent or more in each of the preceding 4 years. The slight
deceleration in 1984 reflected a slowdown in prices for medical care
services, while prices for medical care commodities rose at the same
rate as in 1983. Within the medical care service component, charges for
physicians’ services rose 6.0 percent, the smallest increase in 11
years. Charges for dental services and other professional services also
decelerated in 1984. Following a 9.3-percent increase in 1983, the
costs of hospital rooms rose 7.4 percent in 1984, the smallest since
1973. Within the medical care commodities component, the index for
prescription drugs rose 9.9 percent, about the same as in 1983. Prices
for nonprescription drugs and medical supplies decelerated slightly in
1984, increasing 5.4 percent.



Apparel and other expenses



Apparel. The index for apparel rose 2.0 percent in 1984, declining
in the first half of the year before rising sharply in the third
quarter. The introduction of higher-priced fall merchandise was
responsible for the third-quarter spurt. Clothing sales and promotions
were prevalent throughout the rest of the year. Small-to-moderate price
increases were recorded for most men’s, boys’, women’s,
girls’, and infants’ clothing items and for footwear. The
index for jewelry and luggage declined slightly, reflecting a decline in
prices for precious metals. Charges for apparel services (such as
laundering and dry cleaning), which rose 4.9 percent in 1984, continued
to declerate from their peak level increase of 12.5 percent in 1978.
Most of the 1984 advance was due to higher prices for dry cleaning
services.



Entertainment. The index for entertainment, which had decelerated
yearly from 1980 to 1983, rose slightly faster in 1984, increasing 4.2
percent. The cost of entertainment services rose 5.7 percent in 1984.
Admission fees for movies, theaters, sporting events, and other forms of
entertainment rose 7.5 percent on average. Increased charges for
membership to fitness centers, health centers, and fees for participant
sports averaged 5.7 percent. The index for entertainment
commodities–up 3.3 percent–also rose slightly more than in 1983,
principally because of larger price increases for photographic supplies
and equipment. Prices for reading materials, however, slowed
substantially in the past 2 years, reflecting a moderation in printing
costs. The 4.0-percent increase in 1984 was the smallest advance since
this series was introduced in 1977. Prices for sporting goods and
equipment rose 3.4 percent, as a 5.3-percent increase in sports vehicles
was partially offset by near-stable prices for bicycles and sporting
equipment.



Other goods and services. The other goods and services index
increased 6.1 percent in 1984, the smallest annual increase in this
category since 1976. Increases in personal and educational expenses (up
9.1 percent) accounted for half of the 1984 increase in this component.
Tuition and other school fees increased 10.1 percent in 1984 after
having doubled over the past 7 years. Prices for school books and
supplies also continued to advance–up 8.1 percent–but by less than in
other recent years. The index for personal expenses rose 6.5 percent,
substantially less than in any year since this series was introduced in
1977. The deregulation of banks increased competition for depositors
and coincided with the smaller increases in charges for banking
services.



The index for tobacco rose 4.9 percent in 1984, following increases
of 20.1 in 1982 and 10.1 percent in 1983. Legislation passed in the
summer of 1982 and effective January 1, 1983, doubled the Federal excise
tax on cigarettes from 8 to 16 cents per pack. Sharp increases were
recorded from September 1982 through January 1983 as manufacturers
immediately began phasing in the effect of the tax increase. In 1984,
two moderate increases in wholesale prices for tobacco were passed on at
retail.



Producer prices: energy trends



Prices received for domestic energy products decreased in 1984,
following more substantial and pervasive declines in 1983. The indexes
for both finished energy goods and crude energy materials continued to
fall, although not nearly so much as in 1983; prices for intermediate
energy goods were almost unchanged, following 2 consecutive years of
decline. Major influences on energy prices in 1984 included unusual
weather patterns, climbing foreign exchange rates, heavy inventories of
crude oil and refined petroleum products, and the decontrol of natural
gas. (Prices for major refined petroleum products and natural gas are
lagged 1 month in the Producer Price Index.)



The index for finished energy goods decreased 4.1 percent from
December 1983 to December 1984. Indexes for gasoline and home heating
oil–both of which had fallen at double-digit rates during 1983–fell
again but by considerably less. These declines largely reflected the
general oversupply of petroleum and intense competition among refiners
to boost their market share. Natural gas prices rose slightly, mostly
in response to earlier regulatory adjustments and increased sales of
unregulated “new’ gas. Natural gas is now essentially
competitive with other fuels, as evidenced in declines in the natural
gas index in the last 4 months of 1984.



The Producer Price Index for intermediate energy goods was
virtually unchanged in 1984, as price increases for most refined
petroleum products were largely offset by an advance in the index for
electrix power. Extreme weather patterns in both summer and winter
caused users to increase electricity consumption. The increased costs,
particularly for fuels for generating this additional power, were passed
on to consumers. Prices for residual fuel moved slightly higher in
1984, when electric utilities opted for this fuel to meet some of the
surge in demand during severe weather. Prices continued to decline for
liquefield petroleum gas, kerosene, jet fuel, and diesel fuel,
reflecting the oversupply of such fuels.



The PPI for crude energy moved down 1.0 percent in 1984, after
falling 4.6 percent a year earlier. Prices for domestic crude petroleum
fell 3.2 percent, much less than in other recent years. As in 1983,
continued global surpluses in energy supplies frustrated attempts by the
Organization of Petroleum Exporting Countries (OPEC) to maintain price
levels. The index for coal edged up just 0.8 percent. Although coal
consumption grew about 8 percent in 1984, producer stockpiles were up
significantly over the year in anticipation of a strike that never
materialized.



Capital equipment



Business spending on new plant and equipment surged 13 percent in
1984, the largest advance in 18 years. This increase was due to
enhanced after-tax returns on investment and widespread optimism about
the durability of the general expansion in the economy. Nevertheless,
the Producer Price Index for capital equipment continued to rise only
modestly –2.1 percent from December 1983 to December 1984, roughly the
same as in 1983. Moreover, prices of few major products moved up more
than 4 percent during the year. As in 1983, intense competition from
imports was a major factor restraining inflation in this sector of the
economy.



Prices for machine tools rose about 4 percent, as orders and
domestic shipments were sharply higher than a year earlier, although
still well below prerecession levels. These types of machinery–key to
industrial automation–range from computer-controlled lathes to
automated presses that shape metal parts. The level of orders for
machine tools is considered an indication of capital spending by the
automotive, appliance, aircraft, and other durable goods industries.2
Imports controlled an unusually high share of the American market for
machine tools, just as they had in 1983. However, the recovery was
strong enough in 1984 to allow increased sales by both domestic and
foreign manufacturers of machine tools.



Prices for heavy trucks rose 4.2 percent over the year, on the
strength of sharply increased sales of 0.26 million units from a low of
0.18 million in 1983. These trucks range from medium-duty general
delivery trucks to heavy-duty diesel tractor-trailers. The turnaround
in sales reflected the strong recovery in business investment in 1984.



Intermediate goods less foods and energy



After accelerating moderately to a 3.0-percent increase in 1983,
the Producer Price Index for intermediate goods other than foods and
energy eased somewhat, registering a 2.0-percent rise for the 12 months
ended in December 1984. The unusually strong pace of economic growth
early in the year enabled manufacturers to raise prices for many goods
whose prices had slumped during the preceding 2 years. However, these
increases were mitigated by the soaring foreign exchange value of the
U.S. dollar, which severely curtailed export demand for American-made
industrial goods, and prompted increased imports of products that
undercut domestic markets. This unfavorable trade balance, plus a
slowdown in the overall economy, caused prices for most intermediate
goods to either rise more slowly or decline during the latter part of
1984.



Manufacturing materials. The index for nondurable manufacturing
materials moved up 1.3 percent over the course of the year, about half
as much as in 1983. Following a small increase in 1983, prices for
industrial chemicals turned down 4.0 percent, reaching their lowest
level since the end of 1980. Double-digit decreases occurred for vinyl
chloride monomer (used in making plastics), as well as for benzene and
ethylene, two widely used primary industrial chemicals. These resulted
from lower crude petroleum costs, heavy import competition, and
uncertain prospects in housing and automotive industries. Lower
chemical prices tended to restrain prices for derivative products;
synthetic fibers and synthetic rubber showed little net change over
1984, the third consecutive year of flat or declining prices. Price
increases also moderated for plastic resins, gray fabrics, finished
fabrics, leather, and inedible fats and oils (the last nevertheless
still advanced sharply).



A major exception to the moderation of prices of intermediate
industrial goods was in the pulp and paper products industry, where
strong demand kept manufacturers operating at over 95 percent of
capacity throughout the year. Import competition was not very serious
because labor disputes reduced output in the Canadian paper industry;
this also made it possible for U.S. paper producers to maintain export
levels in spite of the strength of the U.S. dollar. As a result, price
increases accelerated over the year for woodpulp and paperboard
(recording double-digit advances), as well as for paper.



Reversing the 4.3-percent climb of the previous year, the index of
materials for durable manufacturing edged down 0.3 percent during 1984,
led by nonferrous metals. The market for aluminum was not as strong as
anticipated. American producers reacted to bulging inventories and
sagging prices by closing several major smelting-refining operations
that together accounted for almost one-tenth of total production
capacity. Aluminum prices continued to slide, nonetheless, ending the
year about 7 percent below 1983 levels. Copper prices declined for the
fifth consecutive year. The urgent need for foreign exchange to repay
debts prompted Chile, Peru, and Zambia to continue heavy exports of
copper in spite of minimal profits. The American copper mining industry
petitioned the Federal Government for relief against imports, but was
denied. Prices for lead, zine, gold, and silver also fell during the
year. Flat glass prices fell 5.1 percent, the first drop since 1972.
This resulted from moderation in costs for inputs such as natural gas,
as well as uncertainty in the construction industry.



The steel mill products index did register an increase (2.2
percent), but this was only half as much as in 1983. The import share
of the U.S. steel market reached a record high of 26 percent during
1984, up from a 21-percent share a year earlier, thereby displacing more
U.S. production. Unlike the previous year, when decreases for tubular
products and wire partly offset steep increases for sheets and strip,
the principal steel categories showed uniformly modest advances in 1984.
Moderate increases also took place for hardwood lumber and Portland
cement.



Construction materials. The housing construction market began the
year on a very strong note, but then generally subsided as mortgage
interest rates climbed during the second and third quarters.
Correspondingly, softwood lumber prices rose during the first quarter,
but subsequently turned down, ending the year 5.2 percent below the
December 1983 level. Plywood prices likewise declined 4.6 percent over
the year. Continued expansion of lumber and plywood imports from Canada
(now accounting for nearly 40 percent of the U.S. market) forced many
American sawmills to go out of business during 1984.



Prices for gypsum products (such as wallboard) continued the 1983
rapid increase through the middle of 1984, as shortages persisted in
several areas. However, the gypsum industry finally began to catch up
with demand as the market softened around mid-year. Prices receded
during the second half, to finish the year only 2.1 percent above the
December 1983 level, compared with the 27.1-percent surge in the prior
12-month period.



However, sizable increases for certain products tended to offset
the moderation observed among other construction materials. Those
showing significant advances included wiring devices, asphalt felts and
coatings (formerly asphalt roofing), and prepared paint. This mixture
of price movements over 1984 resulted in a 2.4-percent rise in the
overall index for materials and components for construction, the third
consecutive yearly advance of less than 4 percent.



Grains and feedstuffs



During 1984, the Producer Price Index for grains fell 12.8 percent,
largely reflecting good harvests in the United States and abroad. Grain
prices had climbed more than 20 percent a year earlier because of severe
drought in many growing regions, combined with the impact of the acreage
reduction prompted by the payment in-kind (PIK) program. The PIK
program was formally discontinued for most grains before the 1984
growing season.



Wheat prices rose moderately in the first half of 1984, partly
because of good export demand, but then retreated in the second half as
record harvests occurred in this country and several other major
producing nations. The net result was a 4.6-percent drop in prices from
December 1983 to December 1984. Corn prices fell in almost every month
of the year, for a total decrease of 18.1 percent by the end of 1984.
Expanded harvests after unusually low production in 1983, combined with
stagnant foreign demand restrained by the continuing climb in the value
of the American dollar in international currency markets, were the
principal influences behind the drop in corn quotations. Prices for
barley, oats, and rye also moved down over the year.



The index for oilseeds declined sharply over the year, largely
because of reduced prices for soybeans and peanuts. Soybean quotations
fell more than 20 percent, reflecting increased domestic production,
lagging demand from Europe and Japan, and increased competition from
Argentine and Brazilian exports. A record harvest, made possible by a
yield 7 percent greater than the previous record yield in 1982, led to a
17.4-percent drop in peanut prices. Hay prices also moved down in the
face of abundant alternative animal feeds and extensive pasture feeding
for much of the year.



Price-sensitive industrial materials



The Producer Price Index for crude nonfood materials other than
energy, which measures changes in prices of raw industrial commodities
usually responsive to cyclical shifts in general economic conditions,
dropped 3.3 percent from December 1983 to December 1984. Responding to
the vigorous recovery from the 1981-82 recession, this index had climbed
15 percent in 1983 and continued to advance briskly (at a 7.4-percent
rate) through the first half of 1984. The impact of the second-half
economic slowdown was evident in the behavior of the index for these
price-sensitive industrial materials, which fell at a 13.0-percent rate
from June to December.



Scrap metals were especially prominent in the 1984 downturn. Iron
and steel scrap prices, which had soared more than 50 percent a year
before, decreased considerably during most of 1984, ending the year 5.2
percent lower than their December 1983 level. The low output of
domestic steel mills, which again were confronted with heavy imports of
steel products, lowered ferrous scrap demand and prices. Increased
export demand for ferrous scrap kept their prices from falling more.
Nonferrous scrap prices dropped nearly 16 percent during 1984, in
distinct contrast to the 36.7-percent upward jump in the preceding 12
months. Aluminum base scrap prices were nearly one-third lower by the
end of the year than they had been in December 1983, reflecting the
unexpected weakness in industrial demand for aluminum products.



Like scrap metals, prices for raw cotton and crude natural rubber
fell in 1984 after jumping substantially a year before. Raw cotton
prices had climbed 23.8 percent in 1983 and continued to rise in early
1984. These prices fell through the rest of the year, however, to close
with a net loss of nearly 19 percent from December 1983 quotations.
Demand for some cotton fabrics, notably corduroy and denim, was
considerably lower in 1984 than in other recent years, in part
reflecting a saturation of consumer markets with blue jeans and other
apparel made from those fabrics. Minimal inventory rebuilding by
domestic mills, reduced export demand, and recent excellent harvests in
this country and China added further downward pressure on raw cotton
prices. After advancing about one-third in 1983, crude natural rubber
prices dropped nearly one-fourth in 1984, as world supplies expanded
more than enough to meet demand.



Prices for cattle hides had surged 36.2 percent in 1983 and
continued to advance in most of 1984. However, increased supplies and
lagging foreign and domestic demand lowered fourth-quarter prices,
resulting in a net rise of just 2.3 percent from December 1983 to
December 1984. Prices for leaf tobacco and for construction sand and
gravel also rose in 1984, while indexes for logs and wastepaper decreased moderately.



FOOTNOTES



1 Under long-term take-or-pay contracts, natural gas producers
required pipelines to pay for a minimum quantity of gas whether it was
needed or not. If demand for gas fell, a fixed charge under a
take-or-pay contract had to be spread over a smaller volume, leading to
rate increases for the ultimate gas user.



2 See John Duke and Horst Brand, “Cyclical behavior of
productivity in the machine tool industry,’ Monthly Labor Review,
November 1981, pp. 27-34.



Table:



Table: 1. Percent changes in selected consumer price indexes
(CPI-U), 1982-1984



Table: 2. Percent changes in selected producer price indexes by
stage of processing, 1983-84