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Rising Consumer Prices Outpace Gains in Wages

Fed officials have signaled that they are likely to raise the benchmark overnight interest rate by another quarter-percentage point, to 3 percent, at their next meeting May 3. They have also indicated they could slow or pick up the pace of rate increases depending on how the economy develops.

"The Fed is not going to let up," DiClemente said, adding that these inflation figures by themselves "are not going to be a spur to more aggressive action."


Energy costs rose 4 percent in March. Excluding the more volatile food and energy costs, inflation rose 0.4 percent, the most in more than two years. (Marcio Jose Sanchez -- AP)

_____In Today's Post_____
Economic Worries Aren't Resonating on Hill (The Washington Post, Apr 21, 2005)

DiClemente also noted that some of businesses' recent pricing power is likely to be reined in by consumer resistance to higher prices, as was apparent by the weakening of retail spending last month when gasoline prices climbed.

Consumer prices are rising faster than wages for blue-collar and non-managerial workers, who account for 80 percent of the workforce, the department said.

After adjusting for inflation, average weekly wages for those workers fell 0.3 percent last month, and were down 0.5 percent in the 12 months ended in March, the Labor Department said in another report. That marked the sixth consecutive month in which wages had declined on an annual basis.

"For many working families, the recovery may be showing up in top-line statistics like [economic] growth and productivity growth. But it's nowhere to be seen in their paychecks," said Jared Bernstein, senior economist at the Economic Policy Institute, a think tank that focuses on labor issues.

Many economists predict the economy will grow at a healthy pace this year but more slowly than last year because of rising interest rates. But the fall-off in retail spending last month also raised the possibility that the expansion could slow more sharply if consumers retrench.

"I continue to expect economic growth to continue to slow, perhaps more abruptly, in the months ahead," said Charles W. McMillion, president of MBG Information Services, an economic research firm in Washington.

The Fed's report, called the Beige Book, said retailers and contacts in the tourism industry in eight of the 12 Fed districts "expressed concern that higher energy prices were already, or could soon be, damping consumer demand."

Energy prices soared 21.1 percent in the first months of this year, at a seasonally adjusted annual rate, the Labor Department said. But both oil and gasoline prices have fallen a bit in April, and financial markets anticipate oil prices will ebb this year.


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