I see the Consumer Price Index and the reality of workers wages are giving out more signs of the increased pressure on the average worker. My friends at the Economic Policy Institute point out that prices are rising faster than wages. For the 11th consecutive month, prices have risen faster than wages (click the image below to see it in a larger version). Translation: stuff is costing us more and our paychecks aren’t filling the gap–as anyone knows who has been pulling into a gas station to fill up their tanks.

What makes this trend more confusing to people is that they read that the economy is “growing” and that productivity is up. They think things should be better for them. So, what’s happening here?

Part of the answer lies in the misleading nature of government statistics. I’ve always had an issue with the heavy reliance on Gross Domestic Product (GDP) as a sign that the economy is doing well. In an explanation of GDP, I wrote that GDP tells us that dollars are flowing somewhere but sheds little light on who is benefiting from the economic activity.

So, now, we have the spectacle of GDP rising and productivity going up but wages falling for the average worker in 2004. Here’s what’s up. Sure, there is money moving throughout the economy via transactions that are being counted towards an increase in the GDP (for example, a sale of a house in the crazy real estate bubble counts as GDP activity, even if no new product is created…welcome to the wonders of mad speculation). And workers are working harder and turning out more stuff in a shorter time for the same money…that’s productivity (EPI notes “that productivity grew 16% over this period at an annual rate of 4.1%).”

But, that productivity is not being turned into higher wages. It’s being socked away in higher corporate profits or higher CEO pay and benefits. Bingo—lower wages in the face of increased economic activity. And it’s important to always point out the connection to lower wages and the decline in union power: workers just don’t have a big enough voice in how economic benefits are divided up.

And looking at the wage picture over the four years since the recession that began in March 2001, it’s even grimmer. As the EPI report points out:

Since then, real hourly wages have gone up by 1% in total, an annual rate of 0.2%. Real weekly wages, which reflect the diminished hours of work over much of this period, were flat, down 0.2% over the four-year period.

Here’s the clincher. With higher prices, the Federal Reserve is already signaling its intent to raise interest rates. When that happens, it will put even more pressure on people leveraged to the hilt, likely triggering more bankruptcies (oh, yeah, the Republicans just made that nightmare scenario eve more difficult for the average person) and more economic distress, likely putting a crimp on consumer spending.