Cost of living increases - Time for a raise?

If you're feeling a little pinch on the green, it's not because of St. Patrick's Day. According to economists, the cost of living in the US rose sharply in February, mostly because of the spike in gas prices. 

LOS ANGELES, CA (Catholic Online) - The consumer price index rose by 0.4 percent in February after a modest 0.2 percent increase in January. Higher energy prices are being blamed for 80 percent of that increase.

The observation proves that higher gas prices are putting a pinch on household finances leaving consumers with less money to spend on other things. 

The situation is potentially dangerous. Unemployment still hovers around 8 percent and any dip in spending could threaten the fragile and slow economic recovery. However, the Federal Reserve insists the inflationary pressure is temporary and they do not believe inflation will rise out of control. 

The consensus view is that the current spike in gas prices will be transitory and that consumers and the economy face little danger. 

However, that is a ceteris paribus (all things being equal) assessment. Tensions with Iran and the possibility of war with the Islamic state or their acquisition of a nuclear weapon could change things. Also, unforeseen economic shocks could still affect the economy, pushed to the brink with high energy prices. The outcome of the presidential election can also influence the economy. 

Unfortunately, paychecks are not keeping pace with inflation, costing consumers purchasing power. A report from the Labor Department shows that hourly earnings when adjusted for prices dropped 0.3 percent in February and a full 1.1 percent over the past year. And with high unemployment, workers are less likely to demand higher wages. 

The Labor Department is also reporting that prices charged by producers rose by 0.4 percent. This increase is being attributed to the increase in gas prices, which are being passed along to consumers. 

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