Consumer Prices Increase in April; Wages Decline

Most Americans didn't need to hear today's announcement from the U.S. Labor Department to know that prices for items such as gasoline, food, and energy are steadily increasing. Most people know this all too well since they have paid these increased prices every time they have visited the gasoline pumps and grocery store.

What Americans may be surprised to know is that this is actually considered to be good news - the 0.4% increase of consumer prices in April is below the Labor Department's initial projections. However, even though these increases are lower than what was expected, these price increases for our gasoline, food, and energy staples are well above last year's price increases. In addition, wages are actually decreasing on a month to month basis, which only slight wage increases on an annual basis. With wage increases less than the inflation increases that we are seeing, the average American is certainly seeing an overall decrease in buying power.

According to the Labor Department, gasoline prices increased 10.6% in March and 4.7% in April. These gasoline price increases are expected to continue because of low gasoline inventories caused by unexpected refinery failures. If energy prices continue to increase on this pace throughout the year, the overall energy price increase would be 25.3% for 2007, as compared to last year's energy price increase of 2.9%.

Much has been made recently of the use of corn in ethanol production, which has the potential to lessen our dependence on oil and gasoline for energy production and hopefully lower energy prices. However, this has had an immediate impact on food prices, with the increased need for corn pushing food prices up by 0.4% in April. Beef, poultry, and vegetables saw the biggest price increases, while pork and fruit prices actually declined.

Compounding the increase in consumer prices is the decline in wages over the same period. The Labor Department reports that wages of non-supervisory actually decreased by 0.5% from March to April, even after the wages were adjusted for the increase in consumer prices. Wages have only increased by 0.9% when compared with last year, while consumer prices have increased more than 2.5% over the same period.

In last week's Federal Reserve statement regarding maintaining the current fed funds rate at 5.25%, the Federal Reserve advised that it would continue to monitor the increase in consumer goods prices in an attempt to reduce the risk of inflation. Americans will also continue to monitor this situation and hope that increases in gasoline and food prices will keep pace with salary increases so that consumer purchasing power is not further decreased.

C.M. Paulson is a freelance writer based in Pittsburgh, PA. In addition to receiving her MBA from the University of Pittsburgh's Katz School of Business, Ms. Paulson worked for almost ten years for two Fortune 100 companies in a variety of analytical and management roles.

Source: AP, MSNBC