Monday, August 4, 2008

What Inflation?

From CNBC:

Consumer spending, after adjusting for inflation, fell in June as shoppers were hit with the biggest increase in prices in nearly three decades.

The Commerce Department reported Monday that consumer spending dipped by 0.2 percent in June, after removing the effects of higher prices, the poorest showing since a similar drop in February.

The higher prices reflected a big surge in gasoline costs and helped to drive an inflation gauge tied to consumer spending up by 0.8 percent in June, the biggest increase since a 1 percent rise in February 1981.

The big rise in inflation ate up a part of the billions of dollars in stimulus payments delivered during the month. Personal incomes rose by a tiny 0.1 percent in June following a giant 1.8 percent increase in May.


So -- with the effect of the stimulus checks consumer spending decreased .2% thanks to the largest price increase since 1981. This is very bad news because it indicates consumer spending will drop hard when the rebate check effect wears off.

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