Inflation outpaces earnings, threatens spending

Fri Apr 13, 2012 12:08pm EDT
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By Jason Lange

WASHINGTON (Reuters) - Consumer prices rose modestly in March amid signs a spike in gasoline costs was ebbing, but inflation still outpaced workers' earnings and threatened to undermine spending.

The Labor Department said on Friday consumer prices increased 0.3 percent last month. Gasoline prices rose 1.7 percent, a sharp slowdown from February when costs at the pump rose more than three times as quickly.

Still, workers' earnings fell 0.4 percent in March after adjusting for the increase in prices.

Other data showed consumer sentiment slipped in April as higher gasoline prices hit household budgets.

"The underlying problem of inflation outstripping wage gains remains. That is the danger for the economy in the long run," said Joseph Trevisani, a market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.

For the U.S. Federal Reserve, the reports gave mixed signals about how much room there might be to take new measures to boost economic growth.

The possibility of weaker consumer spending supports arguments for further stimulus, but the consumer price data suggested inflation might not cool as quickly as expected.

Core inflation, which strips out food and energy prices, climbed 0.2 percent, pushed higher by rising rents, medical care costs and used car prices.   Continued...

A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago in this September 21, 2011 file photo. REUTERS/Jim Young/Files