A few weeks ago we noted that rising gasoline prices were going to significantly lower discretionary spending. The $12 increase in the price of a barrel of oil seen so far in 2011 may reduce the average family’s spending, and hurt GDP, by about 0.2 percent.
Food prices are also moving higher, and a recent U.S. Department of Agriculture report said that government experts expect that trend to continue.
For 2011, grocery-store prices their forecasting an increase of 3.5 to 4.5 percent. March consumer inflation reports showed a 3.6 percent increase, the fourth month in a row with accelerating food prices.
The average family spends about 15 percent of their annual income on food, so this increase takes another 0.5 percent of discretionary spending away from other needs.
With bigger chunks of income dedicated to food and gasoline, entertainment and electronics purchases will take a back seat. Big-ticket items, like cars, may also see slower sales.
Officially the recession ended a long time ago. But these price increases are leaving many consumers wishing for better economic times.
Consumer-sentiment surveys are showing improvements in that outlook, but those same survey numbers are more than 30 percent lower than they were before the recession. Gloom and higher prices seem to be the dominant economic themes facing consumers today.
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