Inflation remains tame, but so do gains in earnings

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WASHINGTON -- Despite worry in some corners about the Federal Reserve’s stimulus efforts stoking inflation, there continues to be little indication that consumer prices are heading higher.

The consumer price index was flat in January for the second month in a row, the Bureau of Labor Statistics reported Thursday. A drop in gas prices and a halt to recent gains in food prices held down the overall index. Compared with a year ago, the consumer price measure for January was up a mild 1.6%.

But that moderate inflation rate will provide little comfort to most consumers. Not only have gas prices jumped in recent weeks, the end of the payroll tax holiday at the start of this year has clipped about $40 from the biweekly paycheck for the average worker.


With that, inflation-adjusted average hourly earnings in January were up just 0.6% from a year ago, the Bureau of Labor Statistics said.

Excluding energy and food, the so-called core measure of consumer prices, which is more closely tracked by the Fed, rose 0.3% in January from December, the highest in 20 months. Higher prices for clothes and shelter accounted for much of that increase, although consumers also paid more for airline fares, medical services and school tuitions in January.

Still, the annual core inflation rate in January held at 1.9% for the third straight month. That is just a notch below the 2% inflation target set by the Fed, which has been pumping money into the financial system to stimulate economic growth and help bring down the high jobless rate.

The Fed’s stimulus efforts include the purchase of $85 billion worth of government and mortgage bonds a month, aimed at holding down long-term interest rates to spur investment, spending and hiring. Many economists and policymakers, including some Fed members, are concerned that the central bank’s easy-money policies will lead to spiraling inflation down the road.

So far, there’s little sign of that.

“Consumer inflation remains relatively tame, mostly because of persistently subdued economic growth,” said Diane Swonk, chief economist at Mesirow Financial in Chicago. “Ongoing constraints on consumer budgets, however, will force a reallocation away from discretionary purchases toward necessities. This will hold overall inflation in check, but remain extremely uncomfortable.”



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