There is no doubt the U.S. economy is still in a fragile state. A wave of commodity driven inflation spurned by the increasing cost of gasoline, energy and food is making the situation worse.
In an effort to combat the increases many are turning savings and pension into supplements to the salaries. Couple this with the soft job market making it difficult for employees to negotiate for higher wages.
What Americans know as “real” wages are actually wages adjust to meet the current level of inflation. But the “real” wage of the average U.S. worker has dipped to 5 percent below the wage level prior to the recession.
Elizabeth Motta, a Para-professional from the Bronx has not seen her wages rise in ten years as a member of the Department of Education. Motta, a single mother began to make difficult decisions in her day-to-day items. It began almost innocuously. It was one afternoon at her favorite Wendy’s when Motta first realized the sharp jump in the price of her daily consumption.
“The Jr. bacon burger is $1.39 now. It used to be $1.00,” exclaimed the young teaching aide.
Motta has also done more with less. Cutting out shopping trips, expensive clothing and resorts to cost cutting measures like canceling cable television and turning off as many lights as possible to avoid a large electric bill.
“I use a lot of mouse. So whenever it’s on sale I buy as many as possible. Almost a basket full. I even use cheaper deodorant to save $2,” said Motta.
Motta is like many workers who have seen their wages increase a little or not at all. Weekly
wages have been flat over the last year. Inflation-adjusted pay fell 0.5 percent causing real wages to tumble 0.4 percent over this same time last year — a sharp turn from the largest gain in wages seen in October.
Despite a recent hiring increase real wages have fallen at a 3.8% annual rate over the past five months. The last time wages fell so fast was in July 2008, when oil peaked above $147 a barrel and the U.S. was in a recession.
“If we don’t get some relief in gas and energy … then the consumer is going to have a major pullback,” said PNC Financial chief economist Stuart Hoffman.
This decrease compounded by the rising cost of energy and staples of life are impinging on the spending of households across the country. And that loss of income is changing the mindset of Americans making the rather tame inflation level feel worse than it really is.
The Consumer Price Index increased 0.4 percent in April according to the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the entire index increased 3.2 percent.
This increase could be directly attributed to the energy sector of the index increase again in April. With the price of gasoline continuing to rise you can very well assume that the price of other items follow closely behind – like the price of food.
The measure of the price of food, which includes meats, poultry, fish, and eggs, for dairy and related products as well as nonalcoholic beverages all posted notable, increases, though the cost of farm fresh vegetables declined.
“This is viewed by the markets as a moderate report. Yet headline inflation has accelerated to a pace of 6.2 percent over three-months and over 3.1 percent over twelve-months. Headline inflation is accelerating,” said Robert Brusca of Fact and Opinion Economics.
But the Federal Reserve Board feels that the rising prices of those goods will only have a “transitory” and merely a product exceptional circumstances. If you look at the measure of consumer prices over the last few months, they have all the reason to believe that it is a passing trend.
The Fed worries about the Consumer price index, which measures the prices of goods excluding food and energy. But they are really worried about prices on the verge of deflation. Falling prices drives asset prices down. Worse, they drive down wages — while people’s debts remain fixed.
The reality of the situation is that American wages are rising slower than prices.
Despite the CPI rate showing moderate inflation the truth of the matter is simple, people can’t live without consuming food and energy.
“There is no greater curse on Fed policymakers than the combination of a slowing economy and accelerating inflation, especially when both are largely the result of events taking place outside the U.S.,” said Bernard Baumohl of the Economics Outlook Group.
Yet others are still hanging on to the life they once had.
Teacher Candida Tejada refuses to give up on buying the clothes that are of higher valued brands but skimps on food products.
“I’ll buy the cheaper corn oil, the cheaper rice but I won’t give up on the clothes,” said Tejada, “I also found that it tastes better.”
Tejada like Ms. Motta is a single mother. But unlike her counterpart, Tejada has taken great strides to get not one but two masters degrees in order to make her more attractive to other employers outside of the board of education.
But even with the boost in salary granted by the higher education she still has to make hard choices in terms of transportation and paying for schooling and her daughter’s education.
The teacher recalls the end of her shopping at the corner store because their prices had increased past those of the supermarket two blocks down.
“I see the guys on the street and they yell at you ‘You don’t come here anymore.’,” said the teacher.
Tejada and her daughter now make a trip to the supermarket twice a month; even then they are choosing less known brand names to fill their cart.
“Its tough to look back and see that I could do so much more. I try to spoil myself a bit every two months but I can only do so much with what I have,” said the Manhattan teacher.
People are working harder to maintain their standard of living. With little bargaining power Americans are left with the daunting tasks of making less with — a fact that many around the nation find disconcerting, but both Tejada and Motta find a fact of life.
“Its scary. But you do your part it will get better we just have to make it through right now,” says Ms. Tejada.