Fuel to the Fire

Yields on Treasury notes hit five-year highs yesterday on fears that the world as we know it has changed. (Yields and prices move in opposite directions, so a big increase in bond yields means a big decline in bond prices.) The change investors fear is that inflation worldwide is rising, spurred by growing consumer demand. Today, as if in confirmation of these fears, the Commerce Department reported that retail spending in May unexpectedly jumped 1.4% from April. Gasoline sales, of course, rose sharply, but so did everything else from clothing (up 2.7%) to building materials (up 2.1%) to automobiles (up 1.8%). In fact, spending in all major retail categories increased to a greater or lesser extent. Meanwhile, prices of imported goods also rose more than expected, propelled by the weaker buying power of the dollar and overseas competition for resources and materials. News from China illustrates the forces of international competition at work. The Chinese government’s Statistics Bureau reported that retail sales rose 15.9% from a year ago, led by high-end items. Furniture sales rose 42%. Jewelry sales rose 37%. Automobile sales rose 34%. China is now the third largest consumer goods market in the world, and it’s gaining on number two Japan. It’s got an awfully long way to go even to get close to good old number 1, but the race certainly is on.