US consumer prices rise in March on 5.6% jump in gasoline

15 April 2011 18:29  [Source: ICIS news]

WASHINGTON (ICIS)--US consumer prices rose by 0.5% in March from February, the Department of Labor (DOL) said on Friday, with gasoline - and food-price increases accounting for three-fourths of the advance.

In its monthly report, the department said that the increase in its consumer price index (CPI) for March was attributed chiefly to a 5.6% advance in gasoline prices during the month.

The March advance in gasoline prices followed increases of 4.7% in February and 3.5% in January.

Food prices at the consumer level rose by 0.8% after increasing by 0.6% in February, the department said.

With fuel and food not included in the overall figures, the department said that the core index for consumer prices rose by only 0.1% in March.

But the sharp increases in gasoline prices have economists worried, because that expense category has a direct impact on household incomes and spending, an impact that consumers can see first-hand every week.

The department noted that its gasoline index has gone up for nine consecutive months and has gained 14.4% in the last three months.

Those sharp gains have a direct effect on wage-earner incomes.

In a separate report, the DOL said that real average hourly earnings for all workers fell by 0.6% in March from February, a decline that was attributed to the 0.5% increase in the March consumer price index and increasing gasoline costs.

Hourly earnings in March were actually unchanged, the department said, but the hike in consumer prices during the month meant that wage-earners’ real purchasing power had declined.

Real hourly earnings have declined in six of the last nine months, while the CPI has seen increases in each of the last nine months, ranging from 0.1-0.5%.

That combination of increasing prices - especially in gasoline - and erosion of workers’ purchasing power can affect the economy as a whole, even though the core index for consumer prices has not shown major gains.

Economists say that as the cost of gasoline continues to rise week by week, it can create the perception among consumers that the economy is not doing well and the recovery could falter.

That, in turn, can make consumers less willing to spend on non-essential items, and a pullback in their spending can chill the economy further, creating a downward spiral.

Consumer spending is the principal driving force of the US economy, accounting for as much as 70% of all commercial activity.

On Thursday, the DOL reported that gasoline prices at the wholesale level shot up by nearly 6% in March, an indication that gasoline prices at the pump are likely to show still further increases in April.

Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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