Rising prices, flat paychecks worry consumers

Jasmin Aline Persch • E-mail

The current economic downturn began with a sharp drop in housing prices and has been exacerbated by seven straight months of job losses. But ask Americans what worries them most about the lousy economy, and they are most likely to mention the rising prices of necessities.

Carol Netzel, a retired elementary school teacher, says shrinking budgets make this feel like a recession although one hasn’t been officially declared.

“It doesn’t matter what the economists say,” said Netzel, 78, of Coulee Dam, Wash. “All the people I chat with at the grocery store, the gas station, shopping for school clothes, all are feeling very depressed because of the beating their budgets are taking.”

Economists, led by top policymakers including Federal Reserve Chairman Ben Bernanke, are of two minds on the issue.

On the one hand, they acknowledge that rising inflation is becoming a greater threat to the economy. But with the gross domestic product growing at a snail’s pace, policymakers are reluctant to take any steps to slow inflation, because that might just tip the economy into a deeper downturn.

That is why central bankers left interest rates unchanged when they met Tuesday, declaring in a statement that “the inflation outlook remains highly uncertain” but that “downside risks to growth remain.”

Prices outpace paychecks
While economists are divided about the twin risks facing the economy, consumers are facing  skyrocketing prices at the gas station and in just about every aisle of the grocery store. Prices of fruits and vegetables have shot up by 7.6 percent over the past year, while dairy products have jumped 9.2 percent and cereal 10.4 percent.

A recent study by the Pew Research Center found that inflation is by far consumers’ greatest concern about the economy. Forty-five percent of the public, compared to 24 percent in February, say rising prices are the biggest economic problem. Almost two-thirds say their incomes are lagging behind their living costs.

Although the federal minimum wage was raised by 70 cents to $6.55 an hour in mid-July, for many workers the increase already has been eaten up by higher gas and food prices.

Not being able to, or barely being able to, cover the cost of the basics is only validating the gloomy perception of many that the nation's economy already is in a recession. Msnbc.com readers say they’re forgoing vacations, struggling to fill their gas tanks for the drive to work and toggling between necessities at the grocery store.

Edward Maxwell, a social worker from Englewood, N.J.; says that between monthly payments on his home and high costs for everyday items, his paycheck isn’t stretching far enough anymore.

MORE FROM EYE ON THE ECONOMY

Eye on the Economy Section Front

Jobless consumers will hold back recovery Rising rates could threaten recovery Geithner says global recession losing force Foreclosures stymie efforts to revive economy Falling prices could bring a nasty hangover More light pokes through economic clouds If my bank is ‘stressed,’ should I be, too? Bank tests bring a new set of stresses Corporate profits continue to slide Recession still has grip on the economy Eye on the Economy Section Front   Add Eye on the Economy headlines to your news reader: