Prices fall in Utah, nation

Falling gas prices pulled the cost of living down across the country and along the Wasatch Front in December, but a Wells Fargo economist said Wednesday that fuel prices likely will remain a wild card in 2005.

The January Wells Fargo Wasatch Front Cost of Living Report found that prices fell a non-seasonally adjusted 0.7 percent in December, due primarily to significant drops in the price of transportation (down 2.6 percent) and clothing (-4.8 percent). Smaller declines were reported in housing (-0.2 percent), health care (-0.1 percent) and groceries (-0.2 percent).

"By far and away, the biggest influence on price activity reported today for the month of December was declining gasoline prices," said Kelly K. Matthew, Wells' executive vice president and economist. "But one of the biggest concerns I have about the economic outlook for the near term reflects the very sharp jump in crude oil prices that has occurred in the last two or three weeks."

Meanwhile, the U.S. Department of Labor reported Wednesday that its closely watched Consumer Price Index edged down 0.1 percent last month, reflecting the biggest drop in energy prices since July. Price pressures last year were dominated by a 16.6 percent surge in fuel bills, the biggest jump in 14 years, as gasoline prices jumped by 26.1 percent, natural gas was up 16.4 percent and home heating oil rose by 39.5 percent.

"So what do we make about all this?" Matthews said. "Do we pat ourselves on the back for the lower gasoline prices, or do we begin to worry about the higher crude oil prices?"

Possibly a little bit of both.

This week, while Utah motorists applauded a decline in average gas prices to $1.80 per gallon of unleaded regular, the price of crude oil bounced higher, nearly to $50 per barrel, Matthews reported. Also, he said, "to make it even more perplexing, the futures market as of today's paper have those crude oil prices holding above $47 (per barrel) through September of this year. So the markets do not believe that we're going to get any immediate turnaround, and maybe my exuberance of a month ago was premature."

A cold snap in the eastern United States will increase demand for fuel oil, Matthews predicted. OPEC, the Organization of Petroleum Exporting Countries, has cut production and hinted at additional cuts. Russian oil production is down, and Chinese demand is up. All of these factors, combined with the seeming return of the "speculative premium" built into the price of crude oil, have pushed the price of crude higher, and Matthews said the markets seem to believe they'll stay high. Which, at some point, should translate to higher gas prices, which should in turn affect consumer spending. But when that might happen remains unclear, Matthews said.