Inflation Rates Low At Beginning of Year

As was the case in 2002, the beginning of 2003 sees U.S. consumers feeling comfortable spending most of their household income on goods and services instead of putting it away in savings.

The most watched measure of inflation across the U.S. economy, the Labor Department's Consumer Price Index (CPI), increased 0.2% over the previous month. Over the last year, the CPI rose by a cumulative 2.6%. This is a significant change from the days of double-digit annual inflation.

The 2.6% increase was due mainly to the rise in the cost of transportation (4.8%) and the cost of medical care (4.6%). Other costs that added to the slight increase from a year ago included housing (2.6%), and education and communication (2.3%).

The cost of apparel is the only category that the CPI has tracked with a decrease in average price (2%). This indicates that U.S. consumers seem to be more willing to spend their income on bigger-ticket items, which most likely is due to the lower interest rates seen of late. With U.S. consumers spending more of their income on such "high-involvement" items, apparel retailers are left with no choice but to lower their prices to help stimulate sales growth.