Wednesday, June 19, 2013

A note about the CPI

. - by New Deal democrat

Consumer prices for May were reported on Tuesday as having risen +0.1%, in line with my prediction based on gas prices of +0.2% +/-0.1%.

I haven't been making these forecasts just as an exercise in crystal ball gazing (well, okay, maybe just a little), but also as a way of elaborating on a theme I've been writing about for a long time -- the major but largely unremarked impact of the secular increase in gas prices on the consumer economy.

What I've been trying to show, among other things, is that the relative change in gas prices has been the driving determinant in whether wages fall behind, keep up with, or increase vs. the general price level since gas prices bottomed in 1999. With gas prices finally plateauing or even declining slightly in the last year, real wages have started to increase again.I believe this is an important reason why the economic expansion has so far survived both the payroll tax increase and Sequestration.