How higher prices hit American consumers

The way that economists measure inflation differs a bit from how Americans (and their shopping carts) are really affected by rising food and gas prices.

David Brancaccio: Consumer Prices are one place where the economy comes down to earth and hits us square in the wallet. And that's what happened in February according to the Consumer Price Index just in this hour.  A 0.4 percent increase in the CPI was driven by gas prices. The core rate of inflation was up a more modest 0.1 percent. What's the difference?

As Marketplace's Gregory Warner reports, one of those numbers is a truer test of inflation. But the other may say more about the real economy.


Gregory Warner: When economists want to measure inflation, they pay more attention to the smaller number, the core CPI. That doesn't count food and energy prices which can swing up and swing down.

Ken Matheny is a senior economist for Macroeconomic Advisers. He says those volatile price swings obscure the bigger picture.

Ken Matheny: So energy prices go up, they have a big impact on overall inflation, but then sometime down the road, they may fall.  So sometimes we have to look past that a little bit to get a better picture of the underlying trend.

And that underlying trend he says is climbing upward, but well-contained, he says, hovering under the inflation target set by the Federal Reserve.

But then, there's that other number -- the one economists may discount but regular people feel -- at the pump, and in the shopping cart.

Lance Roberts: Because at the end of the day, when energy prices go up and food prices go up, it impacts the consumption on the bottom line.

Lance Roberts is CEO of StreetTalk Advisors. He says with gas still expensive and the price of food up 1 percent -- not to mention college tuition going up -- the spending power of average Americans has stayed flat the last four months.
 
That's why even good news on inflation can feel kind of hollow.
 
I'm Gregory Warner for Marketplace.

About the author

Gregory Warner is a senior reporter covering the economics and business of healthcare for the entire Marketplace portfolio.

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