Breakthrough Web Design - 515-897-1144 - Web sites for businesses
News & Entertainment for Mason City, Clear Lake & the Entire North Iowa Region

Founded October 1, 2010


Jump in gas prices is hurting economic recovery, reports say


This news story was published on March 18, 2012.
Advertise on NIT Subscribe to NIT

By Don Lee, Tribune Washington Bureau –

WASHINGTON — As politicians squabble over energy policy and question whether to tap America’s strategic oil reserves, two new reports showed how the recent jump in pump prices is starting to hurt the economic recovery.

The government said Friday that its measure of consumer prices in February jumped 0.4 percent from January — the strongest pace since last spring — mostly because of a 6 percent rise in gas prices over the month.

The annual inflation rate for all goods and services held steady in February at 2.9 percent, thanks partly to flat prices for food and medical services.

Higher fuel prices also took a toll on consumer confidence. As measured by the Thomson Reuters/University of Michigan survey, consumer sentiment dipped to 74.3 this month from 75.3 in February. The drop ended six straight months of gains and was driven entirely by diminished optimism about the future.

Moreover, the Michigan survey showed consumers’ expectations for one-year inflation rose to 4 percent from 3.3 percent — an increase that, if sustained, could influence their spending behavior and thus the actual inflation rate.

Friday’s reports, plus another by the Federal Reserve showing continuing growth in manufacturing production, didn’t change the generally more upbeat outlook for the economy as the recovery looks to be firming up with stronger job growth and solid retail sales recently.

But they did point up the potentially serious risks to growth if oil prices keep rising. That threat has increased pressure on President Barack Obama to tap the nation’s emergency supply of oil to help stem price increases, even as the president has defended his energy policies against criticisms from Republican presidential candidates.

“The recent jump in gasoline prices has already proven costly, especially to wage gains, and represents the greatest threat to the outlook going forward,” said Diane Swonk, chief economist at Mesirow Financial in Chicago.

Average workers’ earnings, in fact, grew by just 0.1 percent in February from the prior month. After adjusting for February’s 0.4 percent increase in inflation, their real earnings fell 0.3 percent over the month, the Bureau of Labor Statistics said Friday. Compared with a year earlier, real average earnings for all workers fell 1.1 percent in February.

Given such weak earnings and the still-high debt levels of many households, as well as the current 8.3 percent unemployment rate and depressed housing market, analysts remain wary about consumer sentiment and purchasing power.

Thus, the future direction of gas prices is likely to weigh heavily on spending and the inflation rate.

Some top economic analysts are concerned about consumer spending but not inflation. Federal Reserve Chairman Ben S. Bernanke said it was likely that the energy-related jump in inflation wouldn’t last long, just as when the Arab spring uprisings contributed to a temporary rise in oil prices last year.

Bernanke and his colleagues at the central bank focus more on the so-called core inflation numbers, which exclude volatile energy and food items. And in February, core prices inched up just 0.1 percent from January and were 2.2 percent higher than in February 2011, close to the Fed’s explicit inflation target of 2 percent.

Indeed, apart from energy prices, Friday’s inflation report was largely seen as positive. Prices for some goods such as apparel and used cars fell last month.

Food costs were flat over the month, with vegetable prices falling for the fifth month in a row.

Consumers also got some unexpected relief in their out-of-pocket health care costs. Overall, the government’s consumer price index of medical care services was unchanged in February, though it was up 3.4 percent from a year earlier.

The price of professional medical services, which include doctor and dentist services, dipped in February for the second straight month. That’s the first time there has been a back-to-back price decline in professional medical services, said economist David Rosnick at the Center for Economic and Policy Research in Washington.

The price of hospital services was flat last month, but so-called medical care commodities, which include drugs, rose sharply in February.

Uwe E. Reinhardt, a health care economist at Princeton University, cautioned against reading too much into statistics covering a month or two of medical care price changes, which are difficult to measure at the consumer level because charges are largely paid by insurance companies.

“It’s conceivable that over the next 10 years prices will stabilize or actually decline,” he said, “but a three-month run couldn’t tell you that.”

Robert Zirkelbach, a spokesman at America’s Health Insurance Plans, said other data indicate that prices for hospital and other medical services were continuing to spiral higher.

Leave a Reply

Your email address will not be published.

 characters available