In June, consumer exhaled: after six months of steep inflation, prices declined. This may have brought enough relief to Americans to boost real spending in July, after it had declined the prior three months straight. This provided a little bit of optimism on the recovery: perhaps the summer slowdown was more due to a temporary rise in prices than lasting pessimism. If that was the case, then the recovery may struggle this fall -- prices are rising again.

In fact, Americans' relief from higher inflation was very, very brief. Here's a chart showing the monthly change in the Consumer Price Index since 2010, via the Bureau of Labor Statistics:

cpi 2011-08.png

So prior to December, inflation was relatively low; really, it was virtually nonexistent during much of 2010. But in December, prices began rising more aggressively. Each month since, with the exception of May and June, month-over-month inflation has been at least 0.4%.

Indeed, June's relief essentially just neutralized inflation in May. Since then, prices began rising at a similar pace to what was seen in the first part of 2011.

This has a few implications. First, it implies that if inflation was responsible for consumers pulling back from April through June, then we may see spending contract again this fall. If that happens, we can expect hiring to remain slow. Indeed, if the spending slump is prolonged, the very low rate of hiring could turn into net job losses.

Second, the rising inflation trend will make it harder for the Federal Reserve to justify additional monetary stimulus. Although it pays more attention to core inflation -- the measure that excludes food and energy -- that metric has also been growing moderately too. Last November, when the central bank began a second round of quantitative easing, it did so in the name of its dual mandate: both inflation and hiring were lower than their targets. Unemployment is still far too high, but without the threat of deflation, the Fed may not be comfortable with additional intervention.

So neither consumers nor the Fed is likely to spur much hiring this fall. That just leaves government stimulus. Since the president's latest jobs plan has approximately zero chance of passing, the economy will just have to heal on its own.

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