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Consumer Price Index bumps up, gas prices to blame

Jeremy Hobson Mar 16, 2012

Jeremy Hobson: I’ll tell you what was up: consumer prices. They rose by the most in 10 months in February; 0.4 percent according to the Labor Department. And rising gas prices were to blame for most of that.

Consumer prices is where we’ll start with our regular Friday guest, Chris Low. He is chief analyst with FTN Financial and he’s with us live from New York. Good morning.

Chris Low: Good Morning.

Hobson: So Chris, how significant is 0.4 percent increase in prices in a month?

Low: Well, you know, a little perspective, right? If prices were to rise 0.4 every month, you’re talking about a 5 percent increase over the course of a year — that’s pretty hefty inflation.

Hobson: And you’re talking hefty like what we saw in the 1970s when inflation got really out of control or nothing like that?

Low: Well, no and the longer answer is, it just can’t get that out of control right now. The reason is that when we had 10 percent inflation in the 70s, it was sustainable because we also had 10 percent income growth. It’s just impossible that that’s going to happen today, because a good 20 percent of the working age population doesn’t have a job. So we don’t have nearly that kind of wage pressure.

Hobson: Well Chris, what’s the impact, then, on our economy? Especially if it’s driven by rising gas prices — what’s that’s going to do to our economy right now?

Low: It’s actually almost entirely driven by rising gas prices. Take gasoline prices out and the CPI was only up 0.1, which is really modest inflation. So, what does it mean? Well, it means that given we don’t have the kind of wage growth to keep up with this kind of inflation, consumption is going to take a pretty significant hit if inflation doesn’t stop.

Luckily, I think it will stop. Gas prices will moderate pretty quickly because consumers elsewhere around the world, particularly Europe, are going to have to stop buying it if the price keeps going up like this. As slow as wage growth is here, it’s essentially non-existent over there.

Hobson: Chris Low, chief economist with FTN Financial. Thanks as always.

Low: Thank you.

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