The Friday report from the Department of Labor on the cost of living probably came as no surprise to most consumers, especially those that drive the San Diego County freeways, piling up mile after mile.
The Consumer Price Index rose by 0.7 percent in February, the biggest monthly increase since June 2009, thanks to a big spike in the prices at the pump and other energy costs.
“The gasoline index rose 9.1 percent in February to account for almost three-fourths of the seasonally adjusted all items increase," according to a CPI report from the DOL’s Bureau of Labor Statistics. "The indexes for electricity, natural gas, and fuel oil also increased, leading to a 5.4 percent rise in the energy index.”
These numbers, and several other economic reports in the past month, will not be lost on Ben Bernanke and the Federal Reserve’s Open Market Committee when they gather this week for two days of discussion about inflation and interest rates.
Bernanke has often suggested inflation remains under control both over the near-term and longer.
Most economists, while fearful of a return of higher costs, tend to agree with the Fed chairman.
“The core CPI, which the Fed focuses on, rose just 0.2 percent from the prior month and 2.0 percent from a year ago," said Dr. Lynn Reaser, chief economist at the Point Loma Nazarene University’s Fermanian School of Business. "The Fed is likely to see the rise in gas prices as temporary and prices at the pump have already started to back down.”
The core rate of the CPI includes all items excluding the volatile food and energy components, which tend to volatile.
Although rates remain at historically low levels there have been inklings that could be changing.
Freddie Mac reported Thursday the average rate on a 30-year fixed rate mortgage increased to 3.63 percent, the highest level in nine months.
“Fixed mortgage rates rose on stronger signs of jobs growth and consumers spending," said Frank Nothaft, chief economist at Freddie Mac. "This helped offset the effects of the payroll tax holiday expiration and led to a 1.1 percent increase in retail sales, which was well above the market consensus forecast."
Bernanke has suggested the Fed will maintain its policy of low short-term interest rates until the nation’s unemployment rate declines to at least 6.5 percent.
Last month the unemployment rate dropped to 7.7 percent, a number still too high to raise concerns about wage inflation, something the Fed chairman keep in close focus.
“Outside of energy inflation remains tame. Global demand is still soft with recession in Europe, and weak U.S. wage growth is also limiting inflation," said Stuart Hoffman, chief economist at The PNC Financial Services Group. "Firms are reluctant to raise prices, and with good profit margins have the flexibility to hold the line on price increases. Contained and low inflation is giving the Federal Reserve lots of room to continue its highly expansionary monetary policy.”
The Fed begins its meeting on Tuesday and concludes the next day with a statement about the economy, to be followed by a press conference by Bernanke to explain the policy positions the monetary panel reaches.
But Bernanke has remained clear about where he stands on these issues.
Speaking at a conference in San Francisco earlier this month, the chairman explained where he and most members of the Fed currently see the economy.
“Real interest rates are expected to remain low, reflecting the weakness of the recovery," the chairman said. "This weakness, all else being equal, dictates that monetary policy must remain accommodative if it is to support the recovery and reduce disinflationary risks. Put another way, at the present time the major industrial economies apparently cannot sustain significantly higher real rates of return.”
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