Wednesday, May 30, 2007

Inflation Expectations Increasing

From the WSJ:

Higher fuel costs, however, have caused consumers to expect a pickup in inflation in the next 12 months -- to 5.5%, compared with the 4.6% they expected in February.

Standard economy theory states that when people have higher inflation expectations they will spend more now while their dollars are more valuable. If this assumption is true, we could have a partial explanation for why consumer spending has been resilient for about the last year.

I should add, I'm not a bit fan of the psychological side of economic theory, but that's just me arguing economics is trying to explain something way beyond its boundaries.