food prices

Americans paying more for food and gas.

U.S. consumer inflation rises as Americans are paying more for food and gas.  This trend that could slow economic growth in the months ahead according to a new report. 

 

The Consumer Price Index rose 0.5 percent in March, the Labor Department said Friday. That matched February’s increase, the largest since the recession ended in June 2009. In the past 12 months, the index has increased 2.7 percent, the biggest rise since December 2009.

Excluding the volatile food and gas categories, the so-called core index rose 0.1 percent and it is up only 1.2 percent in the past year.

Consumers are spending more, but the steep rise in food and gas prices could limit their ability to purchase discretionary goods and services. Consumer spending makes up 70 percent of economic activity.

Rising inflation has caused many analysts to reduce their estimates for economic growth in the January-March quarter from roughly 3 percent or higher to as low as 1.5 percent.

Gasoline jumped 5.6 percent last month and has risen nearly 28 percent in the past year. Consumers paid an average price of $3.81 a gallon nationwide on Friday according to the travel group AAA.

Food prices rose 0.8 percent last month, the largest increase in almost three years. Prices for fruits and vegetables, dairy products, chicken and beef all increased. Coffee costs rose 3.5 percent.

Separately, the Federal Reserve said U.S. factories produced more consumer goods, business equipment and raw materials in March, boosting manufacturing activity for the ninth straight month. Overall industrial production increased 0.8 percent.

Factory production, the largest single segment of industrial production, increased 0.7 percent last month. Manufacturing has been a key driver of economic growth since the recession ended. That continued last month, even with supply chain disruptions stemming from the crisis in Japan.

Manufacturers, food processors and other producers are facing higher costs for oil, grains and other commodities. But only some of those increases are reaching the consumer. Many retailers are reluctant to pass on the higher prices for fear of losing price-conscious customers.

Consumers have seen wages and salaries stagnate in the past year, limiting their ability to pay more for many goods. According to a separate government report Friday, average hourly earnings for all employees, adjusted for inflation, dropped 1 percent in the past 12 months.

Stagnant wages are a big reason that most Federal Reserve policymakers say the spike in gas and food will have only a modest and temporary impact on inflation.

“Nothing here to change the Fed’s view that the surge in commodity prices can be ignored as long as it doesn’t lead to second-round effects in wages and core inflation,” said Paul Ashworth, chief U.S. economist at Capital Economics.

Photo credit: Reuters

Via MSNBC