Interest Rate Roundup

Friday, July 11, 2008

Meanwhile, more bad news on the inflation front

I know the credit markets are the big concern here. But I thought I'd point out the fundamental economic news of the day. First, while the overall University of Michigan consumer confidence came in slightly better in July (56.6 vs. 56.4 in June and market forecasts for a reading of 55.5), inflation expectations continued to rise. Consumers who were surveyed now expect inflation to run at 5.3% in the year ahead, up from 5.1% in June and the highest since December 1981.

Meanwhile, import prices jumped 2.6% in June. That was higher than the 2% reading expected by economists. It was also enough to push the year-over-year rate of import inflation to a stunning 20.5% from 18.8% a month earlier. This is the worst reading in the history of the data series (which goes back to 1982; chart above). Ex-petroleum inflation is now running at 7.3% year-over-year, the worst reading since 1988. Even if you exclude ALL fuels, you get a year-over-year rise of 6.6%.

In other words, the inflation picture remains ugly regardless of what else is going on in the capital markets.


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