Carr: Consumers Struggling to Keep Up as Inflation Soars

Thursday, 18 Aug 2011 09:14 AM

By Michael Carr

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Annual inflation grew at 3.6 percent in July according to the latest report of the Consumer Price Index (CPI).

In other economic data, the Bureau of Labor Statistics (BLS), the same office that releases the CPI, reported that wages are 2.3 percent higher than they were a year ago.

Taken together, the two reports show that costs facing the average family are growing faster than income.

Food costs were up 4.2 percent in the latest inflation data and the prices of food at the grocery store rose 5.4 percent in the past year. Restaurant tabs are only up 2.6 percent, less than the gain in general inflation but still more than wage growth. On average, food accounts for about 15 percent of spending for the average household.

Higher food prices, in part, reflect the increase in gas prices that boosted distribution costs over the past year. Food producers are trying to protect profits by passing along the costs they have to pay to get their goods on the grocery store shelves.

Higher production costs show no sign of letting up. Gas prices are still more than 33 percent higher than they were a year ago, according to the CPI report. In addition to being reflected in prices on store shelves, consumers are forced to pay more for gas in their transportation budgets. Gasoline takes another 5 percent of the average family budget.

Wholesale prices for food, also reported by BLS in the Producer Price Index, are 7.5 percent more than they were a year ago. That shows the trend for grocers is still higher, and they will be passing increases along to the consumer as much as possible.

Strong economic growth relies on robust consumer discretionary spending.

The latest inflation data shows that family budgets remain under pressure, implying strong growth is unlikely to be seen before the end of the year.

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