Tags: Americans | Fed | Fuel | Food | Prices | High

Americans to Fed: Fuel, Food Prices Are Too High

Friday, 08 Apr 2011 02:11 AM

 

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On the streets of America, the debate over inflation is over. Prices are too high and rising too fast, many people say.

"The government says inflation is low, but that's not what I'm seeing at the grocery story," Jorge Alberto, an 88-year-old retiree in Miami, said walking out of a supermarket. "My pension is being put to the test."

Policymakers at the U.S. Federal Reserve largely agree that promoting economic growth is still more urgent that constraining a nascent pick-up in consumer prices.

They look beyond the volatile fuel and food prices that have pushed up inflation and focus instead on data showing little if any upward rise in wages, something they would see as the seed of a sustained and broad-based rise in prices.

"I don't think the Federal Reserve has a clue about us little people," said J. McKeever, an instructor at the Montessori Institute of Milwaukee.

"I am very frugal, so I watch what I spend. And what I have noticed in recent months is that I have less money before than I used to, while making the same amount of money and having to pay for healthcare," she said.

Across the country, Americans tell of a disconnect between the real economy they live in and the macroeconomic picture as described by economic indicators.

Consumer prices rose 0.5 percent in February from January, and 2.1 percent over the previous year but the rates were half that when stripping out food and energy.

"There are no salary increases and you know you have the pressure at work to cut, but on a personal level everything else keeps going up. You never seem to be able to catch up," said Paty Peterson, 50, of suburban San Francisco.

Policymakers at the Fed must weigh how much the perception of inflation might trigger actual price increases. The worry would be if businesses pushed up prices to cover their rising costs and workers in turn demanded higher wages to cover theirs — which could spark a self-feeding cycle.

Consumers' inflation expectations rose briskly in March, according to the Thomson Reuters-University of Michigan survey.

U.S. households are facing higher prices for staple products such as Tide laundry detergent and Hershey chocolate bars as cocoa, sugar, oil, wheat, corn and other commodity prices climb.

Major consumer products makers have said in recent weeks that they will be raising prices including Procter & Gamble Co., which said it would raise laundry detergent prices 4.5 percent in June.

Kimberly-Clark Corp. is raising prices on diapers, baby wipes and toilet paper as much as 7 percent.

"My grocery bill is up 30 percent over last year," said Cheryl Holbrook, 47, who educates her seven children at home in Mobile, Alabama. "We have to pinch every little penny and make it squeak."

The Fed's hawks, who stress the risks of inflation, have stepped up their argument that it may be time to wind down the central bank's $2.3 trillion securities-buying program to stimulate the economy. So far, they have been out-argued by those who see recovery from the Great Recession as fragile and still in need of a boost.

The European Central Bank, by contrast, on Thursday raised interest rates for the first time since 2008 to contain rising prices.

If underlying prices rise, or an inflationary psychology starts to take hold, the Fed could change course.

A recent Reuters poll found long-term expectations for the food and fuel prices that have pushed inflation higher in recent month are on the rise.

Consumers meanwhile complain that food and gasoline consume too much of their income, forcing difficult decisions to stay within budgets.

Eileen Reilly, 72, a retired resident of the Chicago suburb of Geneva, said higher gasoline and food prices have forced her to drive less, buy a cheaper food for her dog Lucky, and stop taking pills for a liver condition she declined to identify.

"My doctor said I could die if I don't take them," Reilly said, rolling her eyes. "I told him that I'm 72 and I'll be dead soon as it is. Besides, it was either the pills or the car and the dog. And I need the car and I love the dog."

© 2014 Thomson/Reuters. All rights reserved.

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