WASHINGTON — The spending power of families is being squeezed, government data showed Friday, highlighting doubts about consumers’ ability to drive the economic rebound.
Workers saw their inflation-adjusted weekly wages fall 1.6 percent last year — the sharpest drop since 1990 — even as consumer prices rose only modestly. Slack pay and scarce job growth, along with tight credit and a rising savings rate, are holding back spending. That’s hindering the recovery.
For some families, the overall inflation rate last year — 2.7 percent — understates their burden. Many are struggling with surging costs for health care and college tuition, both of which have been galloping far above the overall inflation rate.
Energy led consumer prices higher last year, offsetting the biggest drop in food costs in nearly a half century, the Labor Department said Friday. Core inflation, which excludes the volatile food and energy sectors, rose 1.8 percent. That’s the second-smallest rise in four decades.
But to middle-class people such as Angie and Larry Kimbrel of Birmingham, Ala., inflation feels anything but moderate. With three sons, the Kimbrels say they’re just scraping by.
Angie Kimbrel, who works for an insurance underwriter, has gone without raises and bonuses and faces higher health insurance premiums. Work is slow for her husband, a painter, because of the sagging construction and housing markets.
“I haven’t seen anything getting cheaper,” said Angie Kimbrel, 43.
She’s facing rising costs for health insurance and gas, in particular.
Economists expect core inflation to remain tame in 2010, giving the Federal Reserve leeway to keep interest rates at record lows to try to invigorate the economy.
Inflation and wages remain low because employers can’t or won’t raise pay in an economy that has shed 7.2 million jobs since the recession began two years ago. The unemployment rate is 10 percent, and the number of jobless has hit 15.3 million, more than double the number when the recession started.
The 1.6 percent drop in average weekly earnings for nonsupervisory workers was the worst yearly performance since a 2.5 percent fall in 1990. Inflation-adjusted pay has sunk in five of the past seven years, underscoring the pressures households felt even before the recession.
The Consumer Price Index rose 2.7 percent from December 2008 to December 2009.
Energy prices for those 12 months shot up 18.2 percent. That was the biggest jump since 1979.
