Prices of gasoline should continue to retrace their post-Katrina upsurge, but natural gas prices are likely to remain high for some time, and consumers could cut spending by more than is currently anticipated over coming months, which could then feed back on business capital spending.
At the same time, however, persistently high energy prices also raise the possibility that inflation expectations could ratchet higher, even if core inflation remains fairly low in the short run. If expectations did become less well anchored, core inflation could subsequently rise and the higher level could persist. 3/4  Another source of uncertainty is the housing market.