Inflation remains a nonfactor, the Bureau of Economic Analysis says today in the Personal Income and Outlay report for July. The BEA's price index increased less than 0.1 percent, compared to 0.5 percent in June.
If you take out the volatile prices of food and energy, you're still looking at an increase of 0.1 percent, compared to 0.2 percent in June. Economists consider inflation of 2 or 3 percent healthy.
Inflation is especially important to watch now that the recession appears to be bottoming out. As long as it stays out of the picture, the Federal Reserve says it will keep interest rates at record lows in an effort to stimulate the economy.
Meanwhile the Bureau of Economic Analysis reports that disposable personal income, meaning what's left over after taxes, fell by not quite 0.1 percent last month. For the third straight month, spending grew — this time by 0.2 percent over June. Personal savings fell to 4.2 percent of disposable income, from 4.5 percent.
You're making a little less. And you're spending a little more. On what? Cash for Clunkers, for one thing. Spending on durable goods — stuff that's supposed to last three years or more, like cars — went up 1.3 percent.
The federal $787 billion stimulus is written all over the income and spending numbers, starting with the $3 billion Clunkers program.
On in the income side, note that in May, people on Social Security and railroad retirement benefits got a one-time payment for $250, for a total of $157.6 billion. In June, folks on veterans benefits got the same deal, for a total of $5.6 billion. Those so-called personal current transfers made May's income figures higher than they would have been otherwise, and caused June and July to look lower by comparison.
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