Over the last couple of months Americans have gotten used to the fact that dishing out a little more cash has become a common occurrence – April will be no different.
A recent Bloomberg News Survey indicates that economists are forecasting the third straight month of growth in the Consumer Price Index.
“We expect high overall inflation, but the core rate is relatively contained,” said Sean Incremona, Senior Economist at 4CAST Ltd.
Last month the core Consumer Price Index rose by 0.5 percent. The largest gain since June 2009.
The Bureau of Labor Statistics has attributed the recent rise in overall inflation rate to the still high cost of gasoline and food a trend that will most likely be repeated in the upcoming April release. The overall rate can safely be forecasted to rise by 2.6 percent in March.
The core CPI rate, which excludes the volatile food and energy prices, is expected to increase by 0.3 percent, putting the core rate at 1.3 percent growth for the year.
A comforting thought for Federal Reserve Chairman Ben Bernanke who was been quoted on numerous occasions as saying that inflation is not a threat to the economy yet. The Fed has set a preferred growth rate of 2.0 percent a year.
Despite the Fed’s position, consumers cannot ignore the upturn in prices of good since the start of 2011.
Gasoline prices have been the most volatile since the beginning of unrest in Northern Africa and the Middle East. The conflicts have pushed the average cost of a gallon of regular past $3.50 and in some parts of New York City well past $4.00.
“Consumers are still paying a lot at the pumps,” said Incremona.
The prices are also impacting retailers and manufacturers alike. The higher food and energy prices are beginning to have a larger impact on how companies are doing business. Even if the inflation pressures don’t seep into the retail prices paid by citizens, higher wholesale prices could still be bad news for the economy.
“They could forces businesses to rethink their strategy’s as they ponder if they should absorb the increase and limit their profit margins,” said Robert Brusca of Fact and Opinion Economics
If businesses don’t think they can raise their prices to respond to higher wholesale costs, which could squeeze profits, leading to a drop in stock prices and weaker hiring going forward. A fact that is not too comforting with Americas unemployment rate at 8.8 percent.
Which helps illustrate a fact that the Fed is not paying attention to. As the prices increase Incremona explained, wages should increase in order to mitigate the sting. But due to the lack of bargaining power by workers many are seeing the higher cost of living slowly eating up savings or the increase provided by the Social Security Payroll tax cut.
The tax cut injected $112 billion in additional income into the wallets of citizens. But the money afforded by the tax break could be wiped out if high food and energy prices stay on this trend.
This is making Americans feel that inflation is here now. In a March 11th report on consumer sentiment the Conference Board reported that Americans think inflation will reach 6.7 percent.
“It comes for a lack of wage appreciation. It’s just not happening,” noted Brusca.
Both Incremona and Brusca feel that Americans afraid to request an increase in pay to afford these due to the soft job market and high unemployment rate a sentiment that is making Americans more afraid of inflation and if trends continue those fears may soon become reality.