Fire & Finance Blog

Fire & Finance Blog

Low Inflation Gives Americans an Indirect Raise

New data from the government shows that real average hourly earnings for all employees increased 0.4% from December to January.

According to the source of this data – the U.S. Bureau of Labor Statistics – the increase stems from a 0.5% increase in average hourly earnings combined with no change in the Consumer Price Index for All Urban Consumers (CPI-U).

Now, Americans will argue about whether the government is cooking the books on inflation numbers, (or simply using measures that aren’t reflective enough to people’s real-world expenses) – but there’s no arguing that prices on some big items have come down.

Case in point: gasoline prices. These have dropped sharply in recent years, allowing Americans to spend less on gas, and more on other things.

Lower energy prices help to stabilize prices on a wide range of other things we buy. For instance, around 20% of the cost of most packaged foods is the energy cost of simply moving the product from its source to store shelves.

Americans import a high percentage of the durable goods they buy, and the cost of transporting those goods across oceans has declined. This helps producers to keep prices down.

So, there is evidence that inflation has moderated in this one big area which, when combined with even a modest rise in wages, can add up to greater buying power.


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