Is the U.S. Economy Tanking?

By Anastacia Mott Austin

One sign of impending economic doom is people’s reluctance to open their morning paper – the news is only bad.

It wasn’t good this week. The announcement of a cost of living increase of 1.1 percent in June added to the highest increase over a 12-month period since May of 1991.

That’s not exactly news, though. Consumers have felt the pinch in their pocketbooks for months now, and unfortunately it only looks to be getting worse in the near future.

Energy prices have been increasing steadily, and food costs have begun to respond. Companies need to charge more money to cover the costs of manufacturing, and are also laying off workers, adding to the negative spiral, as joblessness only adds to the big picture problem.

The core CPI (consumer price index), which excludes "volatile" goods like energy and food, is typically considered a more stable predictor of inflation. Unfortunately, this index also rose during the month of June by .3 percent, exceeding predictions.

Consumer spending, which drives up to a third of the nation’s economy, is predictably down as well.

Food prices jumped .8 percent over May, driven mostly by significant increases in fruits and vegetables (2.8%) and dairy products (1.6%).

This meant that overall food prices, compared to a year ago, had risen 6.1%, while wages did not keep up. Cereals and bakery goods rose the most over the past year, 10.4% up over last year.

Federal Reserve chairman Ben Bernanke spoke with Congress this week, and shared his gloomy outlook on the United States’ economic future.

"Rapid increases in the prices of energy and other commodities…have sapped household purchasing power even as they have boosted inflation," said Bernanke on Wednesday.

Some economists tried to put a humorous spin on an unfunny subject. "There’s not enough lipstick to put on this pig," wrote economist Richard Moody from Mission Residential, to the company’s clients. "No matter how one slices and dices, the bottom line is that U.S. workers are falling farther and farther behind."

Bernanke predicts that the prices could continue to increase, but the Fed is reluctant to slash interest rates yet again, because it would ultimately only contribute to inflation.

Said Bernanke on Capitol Hill this week, "As we go forward, my colleagues and I are going to have to see how the data come in and how the outlook is changing and try to find the policy that best balances those risks and best achieves our mandate of sustainable growth and price stability."