Consumer prices rose modestly last month, but still faster than most workers' wages, the government reported today.
The Labor Department's consumer price index, one of the most widely followed inflation gauges, edged up 0.1 percent in January, reflecting higher prices for apparel, medical care and other goods and services.
After adjusting for inflation, average weekly earnings for most workers fell 0.2 percent in January from the month before, and dropped 0.7 percent from a year before, the department said. Inflation-adjusted, or "real," earnings have fallen in three of the past four months.
These figures reflect the wages of the nation's production or non-supervisory employees on private, non-farm payrolls, who make up about 80 percent of the workforce. They earned an average $535.16 a week in January, after adjusting for seasonal variation.
Some analysts worry that slipping real wages may force people to pull back on spending, particularly as interest rates keep rising. Because consumer spending accounts for about two-thirds of economic activity, any newfound restraint might slow the economy's overall growth rate.
"This continuing loss of purchasing power together with record low savings rates will constrain growth in the months ahead," Charles W. McMillion, president and chief economist of MBG Information Services, wrote in an analysis of the figures.
But other economists, including many at the Federal Reserve, think faster income gains for the rest of the workforce, combined with a strengthening labor market, will help fuel strong increases in consumer spending and overall healthy economic growth this year.
"I believe that on its present course, our economy should continue to grow at a solid rate, that employment should strengthen and that inflation should remain under control," Jack Guynn, president of the Federal Reserve Bank of Atlanta said in a speech yesterday.
Guynn and other Fed officials have indicated repeatedly that they plan to keep inflation contained by continuing to raise the central bank's benchmark short-term interest rate in small steps.
At 2.5 percent, the federal funds rate is still spurring economic growth, Guynn said. The Fed "still has a ways to go" in raising it, he said.
Fed officials agreed at their meeting this month that they would be closely studying current economic developments to decide how far and how fast to lift the rate, according to minutes released yesterday of the two-day gathering.
In particular, they agreed to keep a close eye on labor costs and profit margins for signs of inflation pressures, according to the minutes, which summarize the discussion without identifying speakers by name.
Labor costs per unit of output have risen in recent months after falling for much of the last three years. But some Fed officials observed that "the flat pattern of growth in wages and compensation suggested an absence of [inflation] pressures in labor markets."
The Fed staff also forecasts that higher labor costs would likely be offset by lower energy and import prices this year.
The CPI rose 3 percent in the 12 months ended in January, largely reflecting the 10.6 percent jump in energy prices during that time as well as the 2.9 percent increase in food prices.
But after excluding food and energy costs, the so-called core-CPI rose a more benign 2.3 percent in the past year and has slowed to a 2 percent compound annual rate in the past three months.
"By most measures, overall inflation today continues to be within the range I find consistent with the definition of price stability," Guynn said.
