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Inflation's up. Should you be down?
by Jeff Horwich, Minnesota Public Radio
November 17, 2004

While wages overall have trailed inflation, the manufacturing sector in Minnesota has seen wages rise 6.5 percent over the past year. (Photo by Bill Pugliano/Getty Images)

"Inflation-watchers," a category that really should include all of us, came in for a couple of shocks this week. On Wednesday the government said consumer prices rose more than they have since May. And it turns out the Producer Price Index, a measure of what companies pay for their inputs, jumped more in October than it has in the past 15 years. Still, most economists are not overly concerned. Should you be?

St. Paul, Minn. — How much is in your paycheck? Did it go up three percent in the past year? Probably not.

Hourly wages for Average Joe American went up 2.6 percent between October last year and October this year. And now the government tells us consumer prices rose 3.2 percent during the same period. For average Joe American, frowning at average Joe Paycheck, that feels like losing ground.

But average Joe American only lives on paper. Whether you're keeping up with inflation varies a lot, depending who you are and what you buy.

Suppose you're in the construction industry, where wages rose more than eight percent in Minnesota over the past year. Or, says state labor analyst Oriane Casale, how about manufacturing -- where wages are up almost 6.5 percent.

"Manufacturing has been steadily adding employment," Casale says. "I think it's been 10 months out the past 12 that we've seen jobs increase, and that's been driving wages up a bit in that sector. (The) finance and insurance (category) is doing well wage-wise too. But the retail trade is just not even holding its own."

Retail workers in Minnesota got a raise of less than two percent over the past year. These are among the economy's lower-paying jobs, where wages are improving very slowly.

This corresponds with what many economists have been saying for months: That the current economic recovery is raising some boats faster than others. One example: Retail expert Dave Brennan at the University of St. Thomas released a survey this week showing Twin Cities households plan to spend about two percent more this holiday season. But that's not true of all shoppers.

"Downscale stores such as Wal-Mart and some of the other stores are going to find it a little tougher going this year," Brennan says. "That's because the folks at the bottom of the income spectrum are not doing so well. And it's being exascerbated by the price of gasoline."

Gasoline is the great footnote to inflation figures lately. This is why the amount you care about inflation also depends upon what you buy. A gallon of regular unleaded is up 27 percent from one year ago. This matters much more if you're a commuter, or drive a truck or taxi for a living. And it matters more if you're lower-income, and gas is a bigger part of your budget. The same goes for fuel oil and natural gas, which are also near their all-time highs.

Fortunately many economists, like Wells Fargo Chief Economist Sung Won Sohn, are predicting better times after October. "I think the good news is that the price of crude oil has been trending down," Sohn says. "We probably have seen the peak of energy cost, and in the future we will see the inflation rate decelerating as the cost of oil and energy costs fall."

Along with energy, you've also felt inflation more lately if you've been eating your fruits and vegetables. Four back-to-back hurricanes took out a lot of crops in Florida, and the shortages pushed up prices everywhere during the past few months. The good news is that weather-based price-hikes are a temporary thing -- though you'll still be feeling it if you plan to stuff oranges into Christmas stockings this year.

With the focus on gas and fruit, it's easy to overlook all the prices going down. Beef, pork and poultry all fell in October. Airline tickets are four percent cheaper than a year ago. Long-distance calls fell two percent in October compared to just one month before. Computer prices in that month fell almost three percent.

And then there's health care. It's an odd category: Something we consume, but also a currency in which many of us get paid. It's true, health care costs are more than four percent higher than a year ago. But Sung Won Sohn says employers are paying for most of that. "If you include the cost of health care, so-called 'total compensation' has really been more than keeping up with inflation," Sohn says.

In other words, if you're getting a lot of use out of a company or government sponsored health plan, you're probably coming out ahead of inflation -- even though it might not feel like it. If health care costs came down, of course, maybe Average Joe's take-home paycheck could beat inflation on its own. Right now, it's falling just a little behind.

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