Expanding GDP

The end of last week brought us another piece of good news, as the advance GDP report showed that the economy continues to expand.

Though not as robust as the 5.6% annualized increase in Q4 of last year, the 3.2% rise is encouraging given metrics that drove the the numbers. Unlike Q4's increase, which was fueled by a large rise in inventories, personal consumption spending jumped by the fastest pace in three years, confirming data out near the end of the quarter that showed consumer spending is accelerating.

Business spending also continued at a strong pace, while manufacturers continued to stockpile inventories, though not at the rate seen last quarter.

One week spot: new home construction detracted from growth.

Nonexistent inflation

As the recovery shows signs of deepening, inflation practically came to a halt outside of energy. The Fed's favorite gauge of prices, the core PCE Price Index, rose at an annual rate of just 0.6%.

Inflation is normally a lagging indicator and is probably at or near the bottom. But with prices barely rising, policymakers at the Fed have plenty of room to keep rates low without being overly concerned that inflation might heat up.