GDP Up, Inflation Down: This Is Going To Be Interesting

There are probably a few Doom-n-Gloomers out there today scratching their heads as to how they are going to explain a 3.5% increase in the nation's biggest report card.

I wrote a couple of weeks ago that I thought we were already in our 'recession', and that the mild dip all the way down to 2% in GDP was the bottom. With a rebound of 3.5% for Q4, that call came dead on.

I've also been calling for stronger growth in Q1 of this year. That call may be a little tougher, considering we've picked up as much as we did with Wednesday's release. But I still see strong growth moving forward:

We'll likely push for that 4 - 5% level over the course of this year. That's strong growth. But, there may be a price. How about inflation?

Well, let's take a look at the Implicit Price Deflator:

Looking at this chart, inflation isn't just under control, it's dropping hard. This is going to get interesting. I've been a big believer that we're going to see higher interest rates sometime in the future. If my growth targets get met, then there's going to be room for that. However, looking at this chart, there really isn't a need for any more increases. But, with growth that I see coming in, it's very likely to push demand up for certain products, and with that, inflation.

Comments

[Greg Calderone:]

How do you see this effecting the financials specifically? Shouldn't they be getting a giant boost from this news? If there is no chance of a rate hike anytime soon?

2007 Feb 01 05:04 AM

[Sr. Pessimist:]

Just like the author said, there's a gloom 'n' doomer right here scratching his head like a chimpanzee. There's even a big yellow cartoon question mark extending up from my head. I'd like to believe life in America can't get any worse. I want to be wrong about my pessimism. The pain of life hurts more than pride going down my throat. But really, this smells fishy.

2007 Feb 02 12:44 AM