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July 16, 2008

Consumer Prices Jump at Greatest Pace in 26 Years, Due to Increased Fuel Costs

1.1 percent in June.

Some good news, bad news on the economy from Instapundit. The Fed has revised its end of year growth projections from a near-recessionary 0.3% (at the lowest) to a non-recessionary, but still quite anemic, rate of 1 to 1.6%.

A reader writes to Instapundit:

The looming recession is not a fabrication of the election-focussed MSM. It is real, and it is scary.

Start with the fact that since WWII there has never been negative YOY gasoline demand without a recession, understand that if hydrocarbon prices merely held at these levels, total energy prices would continue to rise for 3 years due to the lags of utilities and pasing along input costs (natural gas and coal, which have both doubled in the past 6 months and haven't taken even the first bites out of pocketbooks yet), and then realize these energy headwinds are childs' play compared to the contraction of credit that will slow down all businesses' investments. I fear your "Dude, Where's My Recession" series trivializes the inevitable pain that has only been temporarily delayed by the massive 2Q08 fiscal stimulus package of tax rebates.

My profession as an energy analyst and portfolio manager prohibits me from being quoted in your blog (so please don't attribute anything to me, even if you were so inclined to print my perspective) but I worry that in 6 months, there is a very high probability you will regret your cavalier attitude towards significant weakening of the underpinnings of our economy--namely consumer spending, available credit and accessible liquidity.

Not to get "wobbly," as some have said, but I agree with that. It's worrisome enough that we're at the typical point at which growth ends and a recession begins. Even if the economy were fairly sound, there would still be reason to be concerned.

Add to that the fact that credit is becoming much tighter -- reducing spending, reducing new business start-ups -- and people are spending much more money on the essentials (transportation, food... everything) than they used to, and this looks like a real problem. If $1000 bought $1000 in services and goods before, and now it only buys (say) $950, that's a 5% loss in economic activity, isn't it? And that's a pretty big blow to the economy.

I'm not sure we can avoid a recession, but one can always mitigate it. And lowering fuel costs would go a long way towards that.

The Democrats are playing games, inviting not only a recession, but a fairly serious one. It should be every politician's main goal to reduce quickly-rising costs (and diminishing consumer spending) due to fuel price increases. And yet they dilly-dally, partly because they're stupid, partly because they believe abstract concerns about the caribou are more important that the trivial details of petty citizens' lives and prosperity, and partly because they think -- perhaps wrongly -- that a nice deep painful recession is in their political interests.

They ought to reevaluate that last point. The public is not stupid, and they know full well it's the Democrats who are deliberately keeping their fuel and food (and everything) prices high in order to satisfy their far-left environmental cultists.

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posted by Ace at 03:46 PM

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