Worst inflation in 27 years trumps tax rebates

[WhiteFeather]

http://www.marketwatch.com/news/stor...ist=TNMostRead

Worst inflation in 27 years trumps tax rebates
Real spending falls 0.2% in June as incomes rise 0.1%

WASHINGTON (MarketWatch) -- The windfall of cash from Washington in June got eaten up by the worst inflation in 27 years, Commerce Department data showed Monday.

Nominal spending grew 0.6% on the month, but the increase was all due to higher prices, which spiked 0.8% -- the most for any month since 1981. Adjusted for inflation, June's real spending fell 0.2%, the first decline since February. Real consumer spending is up just 1.2% from a year ago, the weakest performance during this business cycle.

"Despite the fiscal stimulus, consumers are starting to pull back under the weight of tight credit, falling home values and a weakening labor market," wrote Michelle Meyer, an economist for Lehman Bros. "We expect this trend to continue."

Consumption will probably only rise at a 0.5% annual rate in the second half of the year, said Harm Bandholz, an economist for UniCredit Markets. "Soaring inflation, notably higher food and energy prices, has eaten up part of the fiscal payments."

The impact of the tax rebates on personal incomes was reduced in June: After getting $48.1 billion from the government in May, individuals received $27.9 billion.

Personal incomes rose 0.1% after a 1.8% surge in May.
Economists surveyed by MarketWatch had been looking for nominal spending to rise 0.5% and incomes to fall 0.1%. See Economic Calendar.

Real disposable incomes fell 2.6% in June, reversing gears after a 5.2% gain in May.

Congress approved some $110 billion in tax rebates in order to boost the flagging economy. It appears that consumers are spending some of the money, but much is being saved, at least for a while, as the personal savings rate jumped to 4.9% in May and 2.5% in June.

Inflation surged in June. The personal consumption expenditure price index rose 0.8% compared with May, the biggest increase since February 1981.
Moreover, inflation's up 4.1% in the past year, the largest rate of growth in 17 years.

Core prices, which exclude food and energy prices, rose 0.3% in June. The increase was as expected.

Core prices thus are up 2.3% on a year-over-year basis, significantly higher than the 2% ceiling the Federal Reserve would like to see.

Details
Monday's data are likely to have little impact on the Federal Open Market Committee's meeting on Tuesday.

The Fed seems committed to keeping its interest-rate target steady at 2%, in an effort to balance the risks of a more severe economic slump against the risks that inflation could get out of hand. The June income and spending report highlights both sets of risks in bold letters.

Real spending on durable goods fell 1.6%, the biggest drop in a year, while real spending on nondurable goods slipped 0.4%. Real spending on services rose 0.2%.

Income from employee compensation rose 0.2%, while proprietors' income increased 0.6% and rental incomes rose 14.2%. Transfer payments fell 1.1% as income from assets dipped 0.2%.

[LittleRedToyota]

yeah, it's amazing what happens when we try to indefinitely stave off a natural and inevitable recession by continuing to pump money (created out of thin air) into our economy for years and years and years...

kinda like how we don't let small wildfires burn and then when one does get of our control...holy crap it has a lot of fuel and turns into one ginormous fire!

great depression number 2...here we come! yeehaw!

morons.

the fed and financial industry try to make the economy out to be some super complicated thing. but, in reality, it's actually relatively simple. distill away all the gimmicks and you are left with a simple supply and demand curve.

and like anything else, as the supply (of money) increases, the price (i.e. value of a dollar) decreases.

we should let natural recessions run their course. they are inevitable anyway. plus they actually strengthen our economy in the long run in a sort of economic natural selection process.

we need to build our economic house out of bricks, not cards.

(ETA: oh, and another round of stimulus checks...as proposed by obama and others...will only make the problem worse. kinda like throwing gasoline on a fire.

"there's too much money out there...and it's causing inflation...so let's solve the problem by putting more money out there".

morons.)

[PocketProtector]

Yep...the FED (not anything Federal) is the ONLY entity that can cause inflation.
I laugh when people say "OH YEAH, look at OIL prices." No concept of S&D whatever. Everything is Tin Hat conspiracies.
Of course the media plays right along and it's quite frustrating listening to it.

[D-FENS]

The Federal Reserve is a drug dealer and he fronts his product to addicts (Banks). The addicts blow all their dope and then whore themselves to pay back the debt and stay high. They generally can't, get their asses kicked or they die and you pay the health care and funeral costs as the taxpayer.


Sound about right? Forgive me, I'm no economist.

[dc dalton]

Nice to see some folks with open eyes here, that actually understand the real problems behind what we are going through right now.

Yes ONLY the fed can create a mess like this, each and every time they "print money" to bail out another bank, every time the come out with a "economic stimulus package" and every time the drop (dropped) interest rates to help Wall street they are screwing YOU AND I ... the poor schmuck trying to put food on the table, gas in the tank and clothes on their families backs.

If you really do some serious reading about inflation you will see this exact same pattern happen over and over, ALL of it directly related to the "powers that be" debasing the currency. When our currency is based off of nothing more than someone's word their is no way for it to compensate for market pressures.... FIAT currency? Literally worthless paper.... "not worth a continental" (that's for you history buffs)

My fear is we haven't even seen the beginning of it, the numbers the government pump out are an outright lie but they are what people believe .. right up until they try to buy something.

[Penguini66]

Yes ONLY the fed can create a mess like this, each and every time they "print money" to bail out another bank, every time the come out with a "economic stimulus package" and every time the drop (dropped) interest rates to help Wall street they are screwing YOU AND I ... the poor schmuck trying to put food on the table, gas in the tank and clothes on their families backs.

EXACTLY!

And it is not that they're simply screwing us. I like to think of it as they are stealing from us. For every single dollar you bring home, they take back a little bit of it by printing more dollars and effectively devaluing the dollars you just earned. IMHO, that is outright theft and should be illegal. If that is not theft, then I guess I don't know what theft is. Again, IMHO, the Federal Reserve Bank should have theft charges brought against them.

I wonder if a class action lawsuit could be levied against the FED?

[dc dalton]

I wonder if a class action lawsuit could be levied against the FED?

Good freaking luck, as far as I know they are "above the law"