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That Elusive Pay Raise, At the Pump

Consumers are enjoying a tangible break on their cost of living through lower energy prices, effectively handing them the money they’re not getting in pay increases at work. But the savings may not help as much as you think.

December’s Everyday Price Index, released today by the American Institute for Economic Research, demonstrates how lower energy prices are helping the average consumer. The EPI measures the cost of living by taking the Consumer Price Index and stripping out those elements that don’t change from month to month, like mortgage and car payments.

The EPI was down 1.0 percent in December, in contrast to the CPI, which fell just 0.4 percent. The EPI gives a greater weight to energy, including gasoline and utility prices, which have been falling steadily over the last six months. In fact, on the strength of lower energy prices, the EPI is down almost 4 percent over the last six months, compared to the CPI’s drop of just 0.6 percent during that time .

With wages up less than 2 percent over the last year, “low energy prices help out where compensation doesn’t,” allowing people more money to spend, save or pay off debt, said Theodore Cangero, senior research analyst at AIER.

Cangero calculated that compared to June, consumers paid almost $57 less at the pump in December. The $57 dollars in savings the pump is about 1.7 percent of average monthly earnings, he said. “Lower gasoline prices are not much of a windfall for the average consumer,” Cangero said.

Relief from lower energy prices comes amid a backdrop of higher prices for food, education, and health care, he said. Consumers are still struggling with high debt, even as their monthly payments are manageable, he said. Importantly, paychecks are not keeping up with productivity, Cangero said.

Despite solid economic growth in the U.S., China is slowing down, Japan is stuck in neutral, and Europe teeters on the edge of a recession, Cangero said. So weak global growth will restrain oil demand, while supply continues to pile up, Cangero said. OPEC has no plans to cut production, and the U.S. shale industry keeps pumping, even though there have been layoffs and cuts in capital expenditures, he said. Until demand picks up or oil producers go out of business, prices should remain depressed, Cangero said.

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