Inflation is eating US wage gains
Food, housing, and healthcare costs rose at a 6 percent yearly rate in the past three months.
from the March 19, 2007 edition
Page 2 of 3
His subway pass rose from $44 to $59 a month. And he's noticed higher prices for gasoline and groceries.
Mr. Stoddard figures that all this has outstripped the change in his income. Higher health-insurance costs alone ate up most of his last raise, he says.
Wage gains of Fall 2006 dissipate
Millions Americans face a similar touch-and-go battle to keep up with rising prices.
In the past two months, average weekly earnings have fallen in real terms (adjusted for inflation). That marks a reversal from last fall when, thanks to a dip in energy prices, real incomes were enjoying sturdy gains.
Consumers are being buffeted from several directions. The resurgence of inflation comes even as homeowners face a dip in property values and as the stock market has sagged from a recent peak. All this dragged consumer confidence down a notch in an index released Friday by the University of Michigan.
Hopes dim for an interest-rate cut
These economic crosswinds also pose a challenge for Federal Reserve policymakers. At a meeting Tuesday and Wednesday, they will weigh the risks to the economy – whether the threat of inflation is greater than the opposing forces that could cause an economic slowdown.
Many investors have been anticipating that the Fed will cut its short-term interest rate later this spring. That would help ensure that the housing downturn doesn't push the nation into a recession.
To pave the way for such a move, the Fed could first announce a "neutral" policy stance, rather than its current inflation-fighting bias toward raising interest rates.
But the latest news on consumer prices is dimming hopes for both the tonal shift and a subsequent interest-rate cut.
Not everyone has given up on the possibility of some easing by the Fed. But it now looks less imminent.
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