A pay bump doesn't mean much when prices go up by a larger margin. The Labor Department reported today that the consumer price index for all items increased by 0.6 percent in September, driven largely by a bump in gas prices, which were up 7 percent from the month before. The 0.6 percent growth more than offset a 0.3 percent bump in average hourly earnings. Real, inflation-adjusted hourly earnings last month actually fell by 0.3 percent.
The so-called "core" CPI measure excludes food and energy prices, which tend to be volatile, and grew by only 0.1 percent last month. In terms of annual growth, the CPI was up by 2 percent for the 12 months prior to September, both for all goods and for the "core" measure.
Food prices showed little growth last month, up only 0.1 percent over the month and 1.6 percent over the prior year. However, that may soon accelerate. Last summer's drought pushed up commodity prices, making feed for livestock more expensive, so prices for meat and dairy products could increase later this year or early in 2013.
"I think the disinflation that we've seen ... that's pretty much behind us now," says James Marple, senior economist at TD Economics. From April through July, the month-over-month change in the CPI for all goods was either at or below zero.
Despite expected food price hikes and the ever-present potential for gas price spikes, there are still other factors acting as a curb on inflation.
"We still have a slow labor market, a slow economic recovery, and a slow global economic environment," says Marple.
In addition, that slow growth in wages also works to keep prices from rising much more. Marple points to the idea of the inflationary spiral, a vicious cycle in which higher prices drive up wage demand, which can mean more demand for goods, which leads to higher prices. That looks unlikely in the current environment, he says.
"Unless you're seeing strong growth in nominal wages, there's less to worry about in terms of a risk of inflation getting really out of control," says Marple.
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Then again, continued slow wage growth—aside from being a reason to not expect higher inflation—is a reason to hope that it doesn't happen.
"With worker incomes growing minimally, inflation is a key factor in determining purchasing power and whether the recent surge in household spending can continue," writes Joel Naroff, president of economic consulting firm Naroff Economic Advisors, in a commentary this morning.
That means that, regardless of any low or moderate inflation expectations, the wage data remain unsettling for the nation's recovery prospects.
"Less real income typically means less real spending, and we're really looking for consumer spending to drive a bit of the recovery, especially because some of the other channels are not there," says Marple.
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Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. You can follow her on Twitter or reach her at firstname.lastname@example.org.