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Real Wages Fall amidst Mounting Job Losses

The headline CPI rose 0.2 percent in September, down from 0.4 percent in August in large part due to falling rent.  The core CPI ticked up to 0.1 percentage points to 0.2 percent last month.  In the last three months, the overall CPI rose at a 2.5 percent annual rate.

Rent and owners’ equivalent rent, which account for more than 30 percent of the CPI, fell by 0.1 percentage points.  A clear consequence of the continuing glut of post-bubble housing, the 0.1 percentage-point drop is the first fall in rent since 1992.

The price of hotel rooms, however, rose 1.5 percent in September after a 0.5 percent jump in August.  Combined with an increase in home fuel prices, housing prices remained flat in the month despite the fall in rent.

Vehicle prices jumped 0.5 percent in September more than reversing the 0.4 percent fall in August.  This increase in the rate of inflation was due to new car prices at the end of the cash-for-clunkers program.  After falling 1.3 percent in August, new motor vehicle prices rose 0.4 percent in September.

In addition, tobacco prices rose 1.0 percent in September, presumably due to hikes in excise taxes.  The price of tobacco has risen 29.0 percent over the last twelve months.  Public transportation prices jumped 2.1 percent as state and local governments continue to look for funding sources.

Medical care continued its steady price growth at 0.4 percent in September.  The 4.4 percent annualized rate represents an uptick from the 3.4 percent over the last three months and 3.6 percent in the first quarter of the year.

The import price index grew only 0.1 percent in September, following a 1.6 percent jump in August.  However, this slackening was entirely due to the fall in fuel prices.  With the weakening dollar, non-fuel import prices rose 0.6 percent in the month.

Falling food prices resulted in a 0.3 percent drop in export prices.  After rising 0.2 percent in August, agricultural export prices fell 2.8 percent in September.  Nonagricultural export prices remained flat in September.

A clearer picture of where inflation is headed should be available when the producer price index is updated next week.  Despite the inflation slowdown, real wages fell $0.01 in September amidst mounting job losses.  Post-bubble, strong consumption growth cannot be expected to return as workers continue to lose purchasing power.  Insofar as the falling dollar is contributing to inflation, however, net exports may prove an important source of economic growth as consumers respond by shifting away from imported goods.


David Rosnick is an economist at the Center for Economic and Policy Research in Washington, D.C.  He received his Ph.D. in Computer Science from North Carolina State University and his M.A. in Economics from George Washington University.  This article was published by the CEPR on 15 October 2009 under a Creative Commons license.



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