January 31, 2011

CHANGE: Egypt Woes Bring Global Food Inflation Fears to Fore.

Related: Consumer spending rises more than expected. Which sounds good, except for this: “U.S. consumer spending rose more than expected in December to post the sixth straight month of gains as households drew down on their savings to fund purchases, government data showed on Monday.” If people are drawing down their savings — “savings dropped to their lowest level since March” — is that a good sign?

UPDATE: Reader John Reece emails:

It might be worth a post reminding readers of the dust-up a few months ago between Sarah “Stupid” Palin and Nobel-prize-winning economist and NY Times columnist Paul Krugman over whether there was any food price inflation. “Stupid” said yes citing actual supermarket price experience, Mr. Nobel Prize Winner sneered no, citing US government statistics. I’d say events have her winning it by knockout.

Meanwhile, another reader thinks I’m missing the real story on consumer spending:

We know that with QE2 we have inflation in our future. So isn’t consumers drawing down on savings and buying “things” now a rational response? Holding on to the money means the money will buy less in the future. This is part of why QE2 will potentially provide potemkin economic improvement for 2012 while making the subsequent 4 years worse. Which of course raises the question “Does Obama really want to be president with a GOP majority congress?”

That’s an interesting angle. And yeah, if you think you’re going to be buying things with million-dollar bills later, maybe it makes sense not to defer purchases.

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