Falling wages, rising inflation a bad combo
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Workers who in other years would not have been hurt by a nominal increase in annual inflation took an economic hit last year when wages fell through the floor.
The Bureau of Labor Statistics reported yesterday that the Consumer Price Index, a measure of a theoretical basket of goods consumed in the U.S., rose at an annual rate of 2.7 percent with the core rate, in which food and energy are removed from the mix, rising 1.8 percent.
It wasn't inflation, however, that hurt consumers; instead, it was falling wages.
When adjusted for inflation, average weekly earnings fell in December from December 2008, the first year-over-year decrease since 2003, the Bureau of Labor Statistics reported. While average weekly earnings were up 1.9 percent over December 2008, the real wage, which is adjusted for inflation, showed that buying power had dropped over the year by 1.6 percent for workers.
Ron Blackwell, chief economist for the AFL-CIO, said workers are being squeezed from three directions: hourly wages have dropped, the average number of hours worked in a week is down to historically low levels and unemployment is high.
The average number of hours worked in a week is now 33.1, lower than at anytime since 1964 when the bureau started keeping track. Average hourly wages also declined by 1.1 percent in December from December 2008. National unemployment was at 10 percent for December.
"So working people are really suffering," Mr. Blackwell said.
The Consumer Price Index is an imperfect measure of inflation because not everyone buys the same goods, but it is the best measure we have, he said.
"If someone has a lot of medical expenses their costs have gone up a lot, but if someone buys a lot of electronics, their costs have gone down," Gary Steinberg, a spokesman for the Bureau of Labor Statistics, said.
Medical costs went up 3.4 percent and hospital services rose 7.1 percent on the year.
The costs of personal computers dropped by nearly 12 percent. Of course, if someone was using that computer for school, it was a hard-won gain since the cost of educational books and supplies rose by 6.9 percent with tuition and fees rising 4.5 percent.
It was a good year to buy clothes for men, boys and infants with prices just about flat, but women and girls paid more with a 2.7 percent increase in clothing. The cost of shoes also went up by 3.5 percent.
Food that we eat at home rose by 0.3 percent, an alcoholic beverage went up by 1.9 percent and that after-dinner cigarette jumped in price by more than 30 percent.
Mr. Blackwell said decreasing wages are a product of high unemployment because employers don't have to offer a lucrative salary to attract job candidates.
He said the trend is troubling because consumers with little money to spare cut back on spending, which in turn means that states collect less sales tax and have to find other sources of revenue or cut state services.
"For the last 15 years economic growth in this economy has been driven by debt-financed consumer spending," Mr. Blackwell said.
He said the only way to stop a prolonged economic slump will be to institute further federal stimulus spending because consumers are out of money to pump into the economy.
First Published January 16, 2010 12:00 am