Average hourly earnings in March were flat compared to the previous month for the second time in a row. On an annual basis, income increased by just 1.7 percent.

Meanwhile, consumer price index data released two weeks from now could show a jump in prices of as much as 2.6 percent year-over-year, according to an estimate from the Bank of Tokyo-Mitsubishi UFJ.

“Higher gas and food prices are being reflected in headline inflation and we have seen the end of growth in real earnings for some time,” said Ellen Beeson Zentner, Senior U.S. Macro Economist at the Bank of Tokyo-Mitsubishi, in a note after the report release.



“Real wages are the strongest link to consumer spending and are a major reason why our forecast for spending in Q1 has been drastically reduced. Energy prices have risen to the point that they are influencing household spending decisions and it may only be a matter of time before businesses respond by slowing hiring.”

However, the stock market cheered the Labor Department report Friday, with the Dow touching a new bull market high.Investors were focused on the headline number reflecting an increase in monthly payrolls of 216,000 vs. the consensus estimate of 190,000.

Federal Reserve Chairman Ben Bernanke has kept interest rates at zero to lift asset prices (i.e. stock market) and lower borrowing costs for companies. A nasty side effect of that policy, traders said, has been a boost in commodity prices. The price of oil climbed to a 30-month high above $107 a barrel Friday. Corn prices surged again Friday, bringing their one-year gain to more than 100 percent. These costs are being past onto the consumer, investors said.

“Bernanke has created an environment of high corporate profits and falling wages, which makes it cheaper to hire and, voila, the unemployment rate goes down,” said Brian Kelly, founder of Kanundrum Capital.

“The Achilles heal of this theory is that it ignores the fact that productivity gains from automation (computers) are much easier to obtain than during the Depression. Therefore, if companies do not hire before inflation takes hold, then the entire experiment fails.”

The stock market seems to be betting Bernanke can thread the needle, with employment rising enough over the next few months that the Fed Chief can hold off until at least December to raise rates in order to control inflation he sees as still in check.

Even consumer stocks are up nicely this year, with the Consumer Discretionary SPDR up more than five percent this year.

“Until jobs, but more importantly, wage growth comes back, I am cautious on the U.S. consumer,” said Michael Block, chief equities strategist at Phoenix Partners Group. “Everything is inflating except for home prices and paychecks. It may not be a problem for the overall indices, but it is for this sector.”

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