High Gas Prices To Wipe Away Tax Cut Benefits

Inflation Specifics

Inflation has been increasing modestly this year. Since the inflation most often focused on is the year over year data, it’s important to recognize that there are base effects helping the rate look better than it is. It’s easy to grow on top of the disappointing growth numbers in 2017. The base effects will be supportive of a year over year inflation until October. If you remember, Janet Yellen blamed the decline in inflation on the decrease in wireless telephone costs.

As you can see in the chart below, there was a sharp downturn in wireless telephone prices in the middle of 2017. That being said, if one industry can bring down inflation, it isn’t that strong to begin with. The blue line shows internet services are currently seeing a decline in prices. There’s a new excuse as to why inflation isn’t increasing as much as some expected. Internet speeds have increased so much over the years, a flat price is great for consumers. 5G access, which should start being implemented in 2020, will be transforming both the internet and wireless phone businesses. The services are merging into one as the telecom firms grow their tentacles.

Higher Gas Prices

The Bloomberg Consumer comfort index shows there was a slight decline in consumer optimism as the index fell from 56.5 to 55.8. The height of this index was mid-April when it was at 58.1 As you can see, there hasn’t been much of a decline, but you wouldn’t expect one with the tax cuts putting more money in the consumers’ pockets. One catalyst for consumer optimism to fade is higher gas prices. Gas is a relatively small amount of a typical person’s budget, but when prices hit psychologically important levels like $3 or $4 consumers start driving less. This is pivotal because the consumer spends less at retail outlets when they drive less. More spending is done online than ever before, but the majority of money is still spent in person. Rising oil prices could push consumers to shop more online and make some more people subscribe to Amazon Prime as if consumers needed more of a reason to get it.

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