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Consumer Prices Look Stable

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Statistics for the first part of 2014 show an economy slowed by winter’s lengthy deep freeze, but recent gains in consumer spending point toward income growth and steady prices.

A survey by the University of Michigan, in cooperation with Thomson Reuters, suggested that while consumer sentiment wasn’t at a terribly high level, a third of people surveyed felt confident of future financial improvements.

Dozens of prices and averages enter into calculations on average inflation, but recent data suggests that prices rose just 1.1 percent as of January 2014 versus the same time a year ago. The data doesn’t include changes to the cost of food and gas, but total prices were up by less than 1 percent, as tracked by the Federal Reserve.

Inflation Sits at Historic Lows

During a recession or depression, consumer prices and inflation tend to take a huge leap upward, but with the economy chugging along in 2013 and into 2014, inflation hasn’t been an incredible concern. During 2008, inflation in January hit 4.28%, according to the Bureau of Labor Statistics (BLS), which tracks consumer prices. Inflation as of January in 2014, on the other hand, was measured at just 1.58%.

People commonly cite 3% as an average for inflation over time, but the historical variances have seen much higher inflation during certain years of economic turmoil. For example, inflation during the gas crisis era of the late 1970s and early 1980s measured anywhere from 9% to almost 14%.

Current Price Trends

The latest press release from the BLS suggests that prices rose 0.1 percent in February, but a significant portion of the increase came from higher food prices. The BLS said food prices rose 0.4 percent while energy costs declined. However, the decline in energy prices was due to a significant drop in fuel prices which offset the large gains in heating oil costs.

The severe winter impacted the buying habits of the average American, but the reduced purchasing activity hasn’t stopped some prices from going up. Increased housing prices have made it somewhat more difficult to buy a house, but those same gains have given homeowners increased equity, which has driven spending in the early spring.

Expectations of Future Price Activity

With the winter losing its grip on Americans, spending in the spring will impact where prices go over the course of the year and whether inflation will start to increase its pace. An increase of 0.1% in February is fairly negligible as far as inflation is concerned, but economists believe that prices could see swifter increases in the coming months.

Another bright spot in the economy has been employment data from the government. Numbers suggest that hourly pay for workers in the United States saw a jump of 0.3% in February. That’s a larger month-to-month increase than has been seen in almost a year.

Most economic indicators reveal positive growth of wealth and income as well as improved consumer sentiment regarding financial expectations and future purchasing plans. Although the economic recovery still travels at leisurely pace, positive consumer sentiment and low inflation are positive economic conditions for consumers.

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