Prices may not be rising, but consumers aren’t likely to be buying because they are already feeling the effect of higher gasoline prices.
Consumer prices were unchanged last month, and inflation increased 1.6% over the past 12 months, the Bureau of Labor Statistics reported Thursday. Core inflation, which excludes volatile food and energy prices, increased 1.9%, which is still below the 2% benchmark that the Federal Reserve Board considers healthy inflation.
“Consumer prices have been flat since September, which is pretty rare,” said Chris Low, Chief Economist at FTN Financial.
But even with affordable prices, consumers are finding themselves stretched thin and unable to spend. Rising gas prices are a major contributing factor.
The January Consumer Price Index data shows a month-to-month decline in gas prices by .3%, but prices are expected rise in the February report.
Gas prices have been increasing for 35 consecutive days, according to AAA. The average cost for a gallon of unleaded gasoline is $3.78, and in California, Hawaii and New York, prices are over $4 a gallon.
Jim O’Sullivan, Chief US Economist at High Frequency Economics, estimates a big jump in the next Bureau of Labor Statistics report, but he doesn’t expect gas prices to keep soaring.
That is likely to be little comfort to consumers.
The cost of gasoline is just one problem decreasing their buying power. The payroll tax increase, which was raised from 4.2% to 6.2% for people earning less than $113,700, is reducing take-home pay. Economists say it’s likely to get in the way of consumer spending for months to come.
“By the time we are done paying taxes, there’s been a decline in real wages,” Low said. “I don’t think we’ve begun to see the impact of payroll tax increases.”
Consumers like Eric Snow, 37, find themselves in a difficult position as they try to manage declining disposable income and rising gas prices.
Snow, an apartment-complex maintenance supervisor who lives in Surprise, Arizona, said he and his wife are not frivolous spenders. Still, the couple and their two sons live paycheck to paycheck.
Gas prices and the tax increase have caused the family to cut back on groceries, put off needed car repairs and sacrifice family time such as vacations.
“We’re taking a $300 hit between both of us every month,” Snow said, regarding the tax increase. “It’s getting ridiculous.”