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Your paycheck isn't going as far as it used to

Laffer says trade war would be "disaster"
Trade war would be "disaster" for economy, Arthur Laffer says 12:16

Americans' paychecks are now lagging behind the cost of living.

Consumer prices rose in June at their fastest pace in more than six years, the Labor Department reported Thursday. Driving the rise in inflation is more expensive gas, car insurance and rent.

Federal data show the consumer price index -- an important gauge of inflation -- ticked up 0.1 percent in June. Overall, however, inflation is up 2.9 percent from a year ago, the largest annualized gain since February 2012. Core prices, which exclude the volatile food and energy categories, rose 0.2 percent in June and 2.3 percent from a year earlier.

For Americans, rising prices are problematic given that wage growth remains anemic, despite promises of corporate investment fueled by last year's federal income-tax cuts. Average hourly earnings in June grew just 2.7 percent from the year before -- slower than the rate of inflation. 

According to the PayScale Index, which tracks quarterly paychecks, inflation-adjusted wages between April and June shrank nearly 1.5 percent compared with the same period last year.

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Solid economic growth and supply bottlenecks have pushed inflation past the Federal Reserve's 2 percent target, after price gains had languished below that level for six years. Fed officials expect to raise short-term rates twice more this year.

Economists expect prices to keep rising in the near future, driven in part by tariffs imposed by the Trump administration on China and other U.S. trading partners. Tariffs are usually passed on to consumers in the form of higher prices on imported goods.

"[W]ith the labour market exceptionally tight and activity expanding strongly, we think that core inflation has further to rise," Andrew Hunter, U.S. economist at Capital Economics, wrote in a note. "The tariffs on Chinese imports imposed at the start of this month, with the prospect of more to come, will only add to that upward pressure."

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