Inflation negates 2007 wage increases

Posted on Wed, Jan. 16, 2008 10:15 PM Kansas City Star

Inflation last year wiped out real average weekly earnings gains for urban wage earners.

From December 2006 to December 2007, average weekly earnings rose by 3.4 percent, seasonally adjusted, the U.S. Bureau of Labor Statistics reported Wednesday.

Those average earnings gains, though, were reduced to a loss of 0.9 percent when the rise in the consumer price index was factored in, according to the bureau’s preliminary data.

The number of average weekly hours worked has been unchanged since July.

Before adjusting for inflation and seasonal changes, average weekly earnings in December 2007 were $605.96, compared with $578.67 a year earlier. Weekly earnings data are collected from payroll reports of private, non-farm establishments.

But consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said. Both energy and food prices jumped by the largest amount since 1990.

Core inflation, which excludes both energy and food, rose 2.4 percent last year, slightly lower than the 2.6 percent increase of 2006. It is the performance of core inflation that the Federal Reserve closely monitors.

Analysts said the slight drop in core inflation for 2007, plus various reports showing the economy is in the grips of a serious slowdown, will convince the central bank that a key interest rate it controls should be reduced by a half-point when Fed officials next meet on Jan. 30-31.

“Price pressures may be a little greater than the Fed would like, but with the economy hitting the skids, inflation is not so high to stand in the way of aggressive action,” said Joel Naroff, chief economist at Naroff Economic Advisers.

Separately, the Labor Department said Wednesday that Midwest consumers had a price break in December, driven by gasoline prices, which declined 3.7 percent in the month.

Overall, prices for Midwest consumers were 0.3 percent lower in December than in November.

Providing further evidence of a slowing economy, the Fed reported that output at the nation’s factories was flat in December, the worst showing since an outright decline of 0.5 percent in October.

In a separate report, the Fed said its latest beige book survey of economic conditions around the country showed the economy was losing momentum heading into 2008. Even so, seven of the 12 Fed regions, including the Kansas City district, did report slight increases in activity.

The Fed observed that “holiday sales were generally disappointing” and pointed to “further weakness in auto sales.”

The Star’s Diane Stafford and The Associated Press contributed to this report.