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Friday
Feb182011

Consumer Prices Rise, but Price Apocalypse Not Here Yet

Photo Courtesy - Getty Images(WASHINGTON) -- For all the headlines this week about a rash of rising prices, the reality for American consumers is that there’s not much there.  At least not yet.

The latest figures from the Bureau of Labor Statistics show that overall consumer prices have increased just 1.6 percent in the past year.  The increase is well within historical norms for price gains and won’t have people having to choose between fueling the car or buying the "extras."

Of note, most of the increase in prices at the retail level come from an increase in the price of energy, which posted a 7.3 percent rise in the past year.  Gasoline, up 13.4 percent, and fuel oil, up 17.3 percent, lead the way in that category.

But despite rising "input" costs, there are big categories of consumer spending where prices haven’t gone up that much in the past year.

Food prices are up just 1.8 percent from the past year, while clothing prices remain literally unchanged at the retail level for consumers.  Shelter costs –- rents and mortgages -– are up just 0.6 percent.

Meanwhile, during the same period -- from January 2010 to January 2011 –- average weekly earnings have increased 2.5 percent, according to the Bureau's figures.  So the average American is actually coming out ahead, with their wage increases besting the increasing costs, but just by a little.

Why aren’t prices going up more?  Well, retailers have absorbed some of those increasing costs for fear that American consumers aren’t ready to see prices go up.

And this lack of pricing power for retailers is likely keeping hiring in check.  If retailers believe they can’t pass along increasing costs, they're not likely going to increase their fixed costs by adding workers.

But this tepid consumer price environment is likely going to change in the coming months.  Big companies are starting to signal to the markets that they're ready to start passing along increasing costs.

If they are able to increase prices without a significant drop in sales, this "inflation" might actually be a good thing.  It might give the companies confidence to hire, as it’s a real world signal that the economy has recovered enough to handle rising prices.

Copyright 2011 ABC News Radio

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