Economists ignore volatile commodity prices when calculating inflation. The poorest families, who spend as much as 25 percent of their after-tax income on food and fuel, don’t have that luxury.
Rising prices “will shave a couple tenths off consumer spending, and the consumers that are going to get hit the most are at the lower end of the income scale,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. On March 11, he lowered his forecast for first quarter growth to 2.5 percent from 3.5 percent and second quarter growth to 3.5 percent from 4 percent, citing in part the persistence of higher energy costs.
America’s poorer families are suffering more than richer households as they face a bigger squeeze from the highest gasoline expenses in more than two years, stagnating wages and a jobless rate that has remained at or above 8.9 percent since April 2009. Their pain is shared by their preferred retailers, including Walmart and J.C. Penney Co.
“Rising gas prices and still-high unemployment levels weigh on the minds of our customers,” Bill Simon, U.S. chief executive officer of Bentonville, Arkansas-based Wal-Mart, said on a Feb. 22 earnings call. “Pressure from higher energy and commodity costs are factors that we will watch closely, as they affect our own logistics and transportation costs, as well as the prices the customer pays,” he said.
1 comment:
This is a big concern due to the fact that the income divide will most likely become more evident as the poor are hurt much more proportionately by the rising commodity prices than the rich. With gas and food prices expected to increase this year, it will be interesting to see how firms change their production and transportation strategies to create better efficiency in order to adapt to this rise in prices.
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