Consumers pinched as inflation outpaces wages

WASHINGTON - American families were squeezed last year as their inflation-adjusted weekly wages fell 1.6 percent -- the sharpest drop since 1990 -- well below the 2.7 percent consumer inflation rate. A surge in energy prices last year offset the biggest drop in food costs in nearly a half-century, the Labor Department's consumer price index (CPI) showed Friday. For December, the index rose a modest 0.1 percent. Excluding food and energy, prices were also up just 0.1 percent last month.

Economists expect core inflation to remain tame in 2010, giving the Federal Reserve leeway to keep interest rates at record lows to try to invigorate the economy. Inflation and wages remain low because employers can't or won't raise pay in an economy that's shed 7.2 million jobs since the recession began two years ago. The unemployment rate is 10 percent, and the number of jobless has hit 15.3 million, up from 7.7 million when the recession started at the end of 2007.

The CPI is calculated monthly, with Labor Department workers checking prices of hundreds of items at stores.