Retail inflation portends burgeoning consumer credit

April retail sales rise:

Soaring fuel bills and a deteriorating job market haven’t stopped consumers from spending. Retail sales excluding cars rose 0.5 percent in April, more than twice what economists had forecast, a Commerce Department report showed in Washington today.

Retail sales weren’t too shabby in March either. Nor was the expansion of consumer credit that month – more than double expectation. Meanwhile, in inflation adjusted terms sales are sucking wind.

Has plastic use doubled down again?

UPDATE: Take out non-discretionaries and it’s really quite ugly.

Is Bernanke facing a death spiral?

Damned if you do, and damned if you do something else:

Should Bernanke and his cohorts drag their feet with interest rate cuts, there is more than a sporting chance of the US economy slipping into recession and dragging the rest of the world down. This will, in my opinion, unleash the forces of deflation with rather dire consequences, especially given the highly-leveraged state of the US economy.

On the other hand, should Bernanke throw increasing amounts of money at the problem and cut interest rates aggressively, the dollar can fall down a precipice. Inflating the economy out of its quandary seems to be the policy being pursued as was again seen last week with the Fed pumping $41 billion into the US financial system on November 1 – the largest cash infusion since September 2001.

This raises the question of how foreign investors are going to react to the trillions they have invested in the US dwindling in non-US currency terms.

Maybe all Bernanke needs is a new economic model.

(h/t to B. Ritholtz)

Put two big finance geeks in a box

Bernanke Says `Saving Glut’ Still Helps Lower Rates

Riddled with conflict. The savings glut is not domestic, the dollar is weak, there’s pressure to lower rates, and inflation lingers in staples. Mortgage rates have de-coupled from Treasuries – rates are dropping, but for lack of mortgage demand.

Meanwhile…

Former Fed Chairman Alan Greenspan adds insult to injury by taking a shot at US housing prices (and notably in a foriegn paper).

Mr Greenspan said he would expect “as a minimum, large single-digit” percentage declines in US house prices from peak to trough and added that he would not be surprised if the fall was “in double digits”.

Greenspan no longer has his hands on the rate button, but it seems the button is now broken (and he knows it). He’s no stranger to conflicting commentary as of late either.

UPDATE: Ok, maybe the button is just a little sticky.

The PI’s Don’t Have It

The San Francisco Chronicle has a fresh piece on inflation. Inflation with a new face gives you the choice between the Producer Price Index (PPI) and the Consumer Price Index (CPI) to fuel your inflation fears.

Which one is best is anyone’s guess, if you believe them at all.

In the simplest terms, the PPI measures the price of a basket of goods manufacturers buy to build plants and keep them running – to produce other goods. The CPI measures the price of a basket of everyday needs. The last PPI release was a monster, while the CPI seemed a little too tame.

If the PPI continues on an upward trend, consumer prices will eventually follow, as manufacturers cannot afford ever shrinking returns on investment. But with so much manufactured outside our fair nation, who knows how this number will really impact.

The CPI, which I commented on yesterday, seems more and more like a crock of malarky. With housing and education prices looking strangely tame, despite what your new mortgage balance and tuition bills say, and health care costs far removed from the basket, it seems as much a credible indicator of inflation as a warm southerly breeze.

To make a long story short, the PPI effect is a dart throw, and CPI could be renamed the BBB, for Babbling Bush (administration) Baloney.

Milk Ain’t Cheap

Prices are headed up. What a landmark piece of news! The Los Angeles Times reported Wholesale Prices Increase 0.3%. Not exactly a scoop.

Prices increase and decrease in trends. Traders (and the Fed) know this, but the government uses these funny little reports like the colored sign at Homeland Security.

We created a huge ATM network with real estate HELOC’s (home equity lines of credit), allowed the dollar to slide to pathetic levels, subsidized the food producers until we choked on our own gratuity, and gorged on foriegn goods supposedly in the name of cheaper prices, so this recent pop should come as no surprise.

Unfortunately, it didn’t need to happen that way, and Greenspan knows it.
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