Consumers are feeling the pinch as the rising cost of energy helped push up consumer prices in the United States last month, according to government statistics released on Thursday; easing the fears of many economists of a possible decline in prices repelling their fear of deflation.
The Bureau of Labor Statistics reported that the consumer price index rose to a seasonally adjusted 0.4 percent in February, the second straight month of growth. The index came in at a higher than projected 0.3 percent made by many economists across the U.S., according to Bloomberg. The increase helped push the overall 12-month growth of the CPI to 1.6 percent.
Economists anticipated the core index rate, which excludes food and energy a measure that excludes highly volatile oil prices. This core rate rose 0.2 percent in January and was up 1 percent for the previous 12 months. A 1 percent rise in apparel prices accounted for the acceleration in the core index, according to the report.
“The main reason for the hike is the rising cost of doing business for many companies,” said Julia Coronado Chief Economist North America at BNP Paribas.
U.S. Economists forecast a 2.5 percent inflation rate this year; the steady increase seen in the last few months could make this a possibility. This increase is good for the economy as it moves us away from the dreaded specter of deflation. It reflects of the confidence businesses have in consumers to absorb the increased price of goods.
However, the surge in the price of raw materials and fuel prices are beginning to cut into already tight budgets. This is particularly troubling as consumers by wage stagnation and the weight of the slow economy struggle to maintain their homes.
“Rising fuel and energy prices are gobbling up household income,” said Michael Englund, Principal Director and Chief Economist for Action Economics, LLC.
Englund notes that food companies, retailers and manufacturers are becoming more willing to pass the buck- so to speak into the wallets of consumers.
The increase in prices could impact the Obama Administration’s recently passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which passed in early December to stimulate the economy. Economists fear that the modest gains provided by such a measure could be tempered by the rising cost of living.
Despite the pinch on consumers, economists see the new numbers as a sign of success by the Federal Reserve.
“The Fed tried everything possible to fight deflation,” said Nathaniel Karp, Chief U.S. Economist for BBVA Compass.
Karp is referring to the Federal Reserve Board’s decision to start a Treasury bond-buying program. The aim of the program was to inject life into the economy by lowering interest rates in an effort to increase lending, lift stock prices and encourage more spending to fuel the recovery.
“We now can stop worrying about deflation and how it will affect the market and should begin to look at the fiscal problems facing the country,” said Karp. He adds, “Now we have to focus on making a good plan and a good strategy to face the challenges we have in education and job growth to stay competitive in the world