In­fla­tion hits 6-year high, wip­ing out wage gains for the av­er­age Amer­i­can


Prices rose at their high­est clip since 2012 over the past year, the La­bor De­part­ment re­ported Thurs­day.

The 2.9 per­cent in­fla­tion for the 12-month pe­riod end­ing in June is a sign of a grow­ing econ­omy, but it’s also a painful de­vel­op­ment for work­ers, whose tepid wage gains have failed to keep pace with the ris­ing prices.

The cost of food, shel­ter and gas have all risen sig­nif­i­cantly in the past year. Gas sky­rock­eted more than 24 per­cent, rent for a pri­mary res­i­dence jumped 3.6 per­cent and meals at restau­rants and cafe­te­rias rose 2.8 per­cent.

Prices have risen roughly at the same rate as wages, eras­ing any gains work­ers may have hoped to re­al­ize via big­ger pay­checks.

“While the la­bor mar­ket re­mains his­tor­i­cally tight, the pace of U.S. in­fla­tion is now out­pac­ing wage gains late in the busi­ness cy­cle,” said Joe Brusue­las, chief econ­o­mist at RSM, an au­dit and ad­vi­sory firm. “The U.S. is now en­snared in a three front trade war which will in the near to medium term re­sult in higher prices.”

For work­ers, more pain may be com­ing, as econ­o­mists are con­cerned that prices could rise fur­ther due to Pres­i­dent Trump’s tar­iffs on many for­eign im­ports. Trump put a 20 per­cent tar­iff on for­eign wash­ing ma­chines ear­lier this year, and the in­fla­tion re­port Thurs­day showed more than a 13 per­cent spike in laun­dry equip­ment over the same pe­riod last year.

“Ex­pect ris­ing trans­porta­tion costs to start get­ting passed on to us, along with the tar­iff in­duced jump in costs,” said Peter Boock­var, chief in­vest­ment of­fi­cer of Bleak­ley Ad­vi­sory Group.

Wage growth has been lack­lus­ter since the Great Re­ces­sion. Re­cently, un­em­ploy­ment fell to one of the low­est lev­els since 1969 and busi­ness lead­ers keep com­plain­ing they can’t find enough work­ers. Typ­i­cally, com­pa­nies raise wages sharply in this kind of en­vi­ron­ment, but av­er­age hourly earn­ings are still stuck below 3 per­cent, a low level his­tor­i­cally.

Fed­eral Re­serve Chair Jerome Pow­ell has called it “a puz­zle” why wages aren’t ris­ing faster. In an in­ter­view Thurs­day with Na­tional Pub­lic Ra­dio, Pow­ell said “we’re start­ing to see” some pickup in wages.

“We now just in the last year or so, we have seen wages move up,” he said.

Ris­ing in­fla­tion puts the Fed in a dif­fi­cult po­si­tion.

Af­ter years of low in­fla­tion, the Fed wants to see prices rises a bit more be­cause it’s a sign of a healthy econ­omy, but the Fed doesn’t want to see the econ­omy over­heat, which typ­i­cally hap­pens when in­fla­tion jumps too quickly.

The Fed fo­cuses most on mea­sures of in­fla­tion that ex­clude en­ergy and food, which can be volatile. The Con­sumer Price In­dex ex­clud­ing food and en­ergy rose 2.3 per­cent in the past 12 months through June. But most Amer­i­cans are more con­cerned about whether their pay is keep­ing up with the cost of liv­ing.

“We’re re­ally close to our tar­get” on in­fla­tion, Pow­ell said Thurs­day. “We want in­fla­tion to be sym­met­ri­cally around 2 per­cent, so just kind of reach­ing up and touch­ing it once doesn’t ful­fill that goal.”

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