U.S. consumer prices up 0.3% in September

Consumer prices rose in September and Americans are paying more for gasoline and a variety of groceries. The price increase over the last twelve months has now rose to 3.9%. Because consumers are spending more money on necessities, they have less cash for discretionary items.

Oct. 19, 2011, 8:50 a.m. EDT
By Jeffry Bartash

WASHINGTON (MarketWatch) — Consumer prices rose again in September as Americans paid more for gasoline and a wide variety of groceries, the government reported Wednesday.

The Labor Department said the consumer price index rose a seasonally adjusted 0.3% last month, pushing the increase over the past 12 months up to 3.9% from 3.8% in August.

The spike in consumer prices over the past year means millions of Americans who receive Social Security and other federal benefits will get a 3.6% increase in 2012, based on how the government calculates payments. It will be the first increase in three years.

Increases in benefits are tied to changes in the so-called CPI-W gauge during the U.S. government’s fiscal year, which runs from October to September.

The core rate of inflation, meanwhile, rose a smaller 0.1% in September, keeping its 12-month increase at 2.0%. It was the smallest increase since March.

Economists surveyed by MarketWatch had forecast consumer price index, which tracks inflation at the retail level, to rise by 0.3% in September. The core rate was expected to increase by 0.2%.

The core rate strips out the volatile food and energy categories and is viewed as a more accurate gauge of inflation by investors and the Federal Reserve. Many economists expect core inflation to recede in the coming months because of the falling price of oil and other commodities.

Yet higher food and gas prices have certainly hit consumers hard over the past year. Energy prices have soared 19.3% while food costs have risen 4.7% during the same span.

When consumers have to spend more on basic necessities, they have less to cash to buy discretionary items. That contributes to slower demand and a weaker economy.

In September, energy prices rose 2.0% on the heels of a 1.2% increase in August. Gasoline prices rose the most, but the cost of natural gas and electricity was also sharply higher.

Food prices climbed 0.5% last month as the cost of dairy products, cereals, baked goods, fruits and vegetables all surged.

Higher prices resulted in a decline in the wages of American workers adjusted for inflation. Real average hourly wages dipped 0.1% in September.

Yet because workers put more hours on the job, real weekly wages actually rose 0.2% last month. The average workweek rose by 0.3%.

Still, real weekly wages are down 2.0% “since reaching a recent peak in October 2010,” the Labor Department said. Higher consumer prices accounts largely for the decline in real earnings.

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