Inflation’s up, consumer spending down

Janet Babin Sep 29, 2006

KAI RYSSDAL: It’s the 29th of September today. That makes this the end of the third quarter for the calendar watchers among you. An opportunity for some reflection about the general state of our economic health. A look at the markets this week leads you to think one way. The Dow did bump up against a record, after all. But a report out this morning might bring you right back down again. Core inflation, that is prices without food and energy, jumped 2.5 percent from last year.

From North Carolina Public Radio, Janet Babin reports.

JANET BABIN: The nation’s annual inflation rate posted its biggest increase since 1995. The jump comes despite a two-year long effort by the Federal Reserve to keep a lid on inflation.

The Commerce Department’s report also found that consumer spending dropped slightly in August and incomes rose only 0.3 percent. That’s the weakest income performance in nine months.

Economist Richard DeKaser with National City Corporation says weak spending and income numbers indicate an economic slowdown. And that might be a good thing:

RICHARD DEKASER:“While the slowdown itself is never welcome, it provides a little bit of breathing room for the economy to gather its legs once again without inflation threatening at the door and resume growth on a more normal pace.”

Until that normal pace returns, Beth Ann Bovino with Standard & Poors says don’t look for any change in interest rates:

BETH ANN BOVINO:“What we think is happening is that the Fed is going to take a wait and see approach through the end of the year.”

If the economy continues to slow, the Federal Reserve might end up cutting rates next year, instead of raising them.

In Durham, N.C., I’m Janet Babin for Marketplace.

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