Inflation Takes Steam Out of Rise in Spending

Fargo ND, Consumers spent more in June, but only because the things they bought cost more.

Driven primarily by energy and food prices, inflation grew 0.8 percent over May, the biggest monthly increase since September 2005, the Bureau of Economic Analysis reported on Monday. Spending, by comparison, grew just 0.6 percent in June.

“Inflation is intensifying, and that is the main source of weakness in consumer spending,” said Dean Maki, chief United States economist at Barclays.

High food and energy prices continue to drive overall prices. Without food and energy, core inflation grew at a more modest 0.3 percent over May. The prices of nondurable goods — the most current measure of food and energy prices kept by the bureau, adding in items like clothing — recorded the biggest year-over-year increase since July 1981.

Democrats in Congress have proposed a second round of stimulus payments, a move the administration has resisted. Now that Congress is in recess, another round of tax rebates seems unlikely to materialize until at least after the election.

The Federal Open Market Committee will discuss how to address inflation concerns and the economic downturn at its regularly scheduled meeting Tuesday. The Fed policy makers are widely expected to leave interest rates unchanged because credit tightening could further crush employment, the housing market and other areas of the ailing economy.

“The Fed is being pulled in a number of different directions,” said Nigel Gault, chief United States economist at Global Insight. “If everything else in the economy were going fine, they’d be absolutely raising interest rates. But it’s not.”

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