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Consumers feel pinch of pricier food, gas

Most of the 0.5 percent increase in consumer prices in March is attributed to costlier food and gas. Outside of those categories, inflation was nearly flat.

Associated Press

Most of the 0.5 percent increase in consumer prices in March is attributed to costlier food and gas. Outside of those categories, inflation was nearly flat.

WASHINGTON — Americans are paying more for food and gas, a trend that threatens to slow the economy at a crucial time.

So far, the spike in such necessities hasn't stopped businesses from stepping up hiring or slowed factory production. Still, higher gas prices have led some economists to lower their forecasts for growth for the January-March quarter.

Consumer prices rose 0.5 percent last month, the Labor Department said Friday. Nearly all of the gains came from pricier food and gas.

When taking out those two volatile categories, core inflation was relatively flat. But at the same time, employees are only seeing small, if any, pay increases.

"People have less money to spend on goods other than food and energy, and that is going to cause the expansion to slow," said economist Joel Naroff of Naroff Economic Advisors.

Consumers have a little more money to spend this year, thanks to a one-year cut in Social Security taxes. But most of the extra $1,000 to $2,000 per person is filling the gas tank. The national average for a gallon was $3.82 on Friday — nearly $1 more than a year ago, according to AAA. In Florida, the average price for a gallon of regular unleaded gas was $3.824, up from $2.879 a year ago. In the bay area, Friday's average price was $3.798, up from $2.838 a year ago.

How big the economic impact will be is the critical question. Many analysts expect food prices will come down and oil prices will stabilize by summer. If companies continue to create jobs, consumer spending will rise faster. That would give the economy a boost by fall.

Nigel Gault, chief U.S. economist at IHS Global Insight, predicts the economy will grow only 1.8 percent in the January-March period, down from an earlier estimate topping 3 percent. Rising inflation will likely cut consumer spending growth to half its pace in the previous quarter.

Oil has soared 28 percent to over $109 a barrel since Middle East turmoil spread to Libya in mid February. If unrest stops spreading and Americans buy less fuel, oil and gas prices could decline.

Even so, some department stores are not taking chances. Many are cutting their fall orders, concerned that consumers will have less to spend. Kohl's is trimming them by more than 10 percent, according to Citigroup Global Markets analyst Deborah Weinswig.

Clothing prices fell 0.5 percent in March, the second straight monthly decline. But prices are expected to rise in the coming months to offset higher labor costs in China and higher cotton costs.

According to a separate report Friday, average hourly earnings for all employees, adjusted for inflation, dropped 1 percent in the past 12 months.

Many retailers and other businesses simply can't pass all their higher costs to their customers.

"The only good news for consumers is that there is terrifically fierce competition among the major discounters like Costco, Target and Wal-Mart," said Craig Johnson, president of Customer Growth Partners.

Consumers feel pinch of pricier food, gas 04/15/11 [Last modified: Friday, April 15, 2011 10:32pm]

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