Inflation Worries Rise Along With The CPI
Wednesday, February 20, 2008SUZANNE PRATT: New data out today suggests inflation is starting to pick up. The Labor Department said January's consumer price index rose a greater than expected 0.4 of a percent, while consumer prices overall rose 4.3 percent in the past year. Separately, the Federal Reserve today lowered its estimate for U.S. economic growth this year to a range of 1.3 to 2 percent. Darren Gersh looks at the impact rising prices are having in this slowing economic environment.
DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: At the Rockville volunteer fire department, they don't need a government report to tell them food prices jumped 0.7 of a percent in January -- the biggest jump in 11 months. A walk into the kitchen tells the story. Firefighter Mike Ader says the shopping list is restricted by rising food prices and a tight budget of $4 per person.
MICHAEL ADER, MASTER FIREFIGHTER, ROCKVILLE VOLUNTEER FIREFIGHTER: It keeps it less interesting. It's more the same, usual thing that we know we can get enough for everybody to eat, same chicken, same sausages.
GERSH: The bigger concern here is gasoline -- up 1.2 percent last month. Ader figures he's spending at least $1,000 a year more to fill up his car.
ADER: In terms of year to year, it helps with an increased salary for our step increases, but it's nothing significant. It doesn't really offset the cost of the gas increase.
GERSH: That is a common complaint. A new survey by the Pew Research Center found six out of 10 Americans say their incomes are not keeping up with rising prices. And rising prices are now considered the most important economic problem facing the nation. Economists say today's inflation report may overstate the problem. Recent clothing price hikes seem unlikely to stick in a slowing economy and January's tobacco tax increases aren't going to happen every month. Still, economist Katherine Kobe says consumers won't feel much relief.
KATHERINE KOBE, ECONOMIST, ECONOMIC CONSULTING SERVICES: I think we will continue to see food price increases this year, which is something that I think your average consumer is going to pay a whole lot more attention to than say the Fed pays attention to.
GERSH: Minutes from the Fed's January meeting released today show that even after it sharply cut interest rates, the central bank continues to be more worried about the overall economy than inflation. The Fed shaved half a percentage point off its forecast for growth this year, while bumping up its inflation outlook by just a quarter point. Economist Doug Elemdorf says Fed policy is striking the right balance.
DOUGLAS ELMENDORF, ECONOMIST, BROOKINGS: Inflation is not likely to break out on the high side within the next few months. But real economic activity could contract very rapidly and there's a risk of a downward spiral in which the financial turmoil weakens economic activity.
GERSH: Darren Gersh, NIGHTLY BUSINESS REPORT, Rockville, Maryland.
