First, Dave Altig of Macroblog looks at the distribution of inflation rates across the different components of the CPI, and finds that two-thirds of the typical consumer’s budget went to items whose price increased at greater than a 3% annual rate in February:
If the Fed was looking for an excuse to cut rates (and I sure would be), this has to undermine the claim that we can just declare victory in the war on inflation and bring the troops home.
Second, Calculated Risk notes the very close historical correspondence between the growth rate of nominal retail sales (which we now know to have been disappointing for January and February) and the growth rate of nominal consumption spending on goods (which will be an important component determining the 2007:Q1 GDP growth that won’t be reported until the end of April). If the lackluster numbers of the first two months also hold for March, and if the CPI inflation numbers are any guide, we’re in for disappointing numbers for the consumption goods component of 2007:Q1 real GDP.
And the plunging numbers on capital goods and new home sales suggest that the 2007:Q1 investment numbers could be pretty dismal. So maybe the economy can keep chugging on consumption services alone?
Choose your poison, Ben: inflation or recession. Or perhaps you’d like a little of each?