Led by Gasoline, Consumer Prices Rise in March

I have some good news, some bad news and some worse news:

The good news is the Fed’s attempt at reflation is working. The bad news is that rate hikes are coming. The worse news is that consumers’ real income is shrinking:

“The evidence is now compelling that the Federal Reserve’s efforts at reflation have substantial traction. Disinflation is clearly behind us, and rising core inflation is now well established.”
–Richard DeKaser, chief economist, National City Corp.

“This report is really the first upside shock in terms of official core inflation figures, and is therefore a major event for markets, at least until the potential release of April data that make for better reading. Evidence pointing to robust economic growth only compounds matters as far as markets are concerned. The Federal Reserve is unlikely to react to a single bad inflation report, although these data will add some extra interest to the May 4 FOMC policy statement.” –Joshua Shapiro, Chief U.S. Economist, MFR, Inc

The Fed has held its benchmark overnight lending rate at 1 percent, the lowest in almost 46 years, since last June to keep inflation from falling too low and to spur growth and job creation.

A separate report from the Labor Department showed worker wages were not keeping up with the quickened pace of inflation. Real average weekly earnings fell 0.7 percent in March and were essentially unchanged over the past 12 months.

Table of Data On US Real Earnings From Labor Dept. (Seasonally Adjusted)

Bloomberg observes that “

Prices paid by U.S. consumers in March rose 0.5 percent, a fourth straight increase, boosted by rising energy, transportation and clothing costs. Excluding energy and food, core prices climbed the most in two years.

The increase in the consumer price index followed a 0.3 percent gain in February, the Labor Department said in Washington. Core prices jumped 0.4 percent, the largest rise since November 2001, and were 1.6 percent higher in the 12 months ended in March.

Rising demand and a recovering labor market may signal a faster pace of inflation for consumer goods later this year, as companies such as Kimberly-Clark Corp. and Procter & Gamble Co. pass along higher commodity costs. Energy prices have climbed the past several weeks amid concern over supplies. The suggestion of higher inflation drove up Treasury yields.”

Rising inflation. Shrinking real income. How does figure into the consumer driven economy?

It suggests that the corporate sector is needed to accelerate its capital spending and hiring pronto. The risk factor is they go to slow, and the consumer becomes fatigued.

Sources:
Who says inflation is down?
Walter Updegrave,
CNN/Money April 13, 2004: 1:07 PM EDT
http://money.cnn.com/2004/04/13/pf/expert/ask_expert/index.htm

Consumer Price Index (CPI)
U.S. Department of Labor, Bureau of Labor Statistics
www.bls.gov/cpi/home.htm