Falling oil eases inflation, boosts consumer spending, creates jobs ...

... and really puts the bears on the endangered species list. According to today's WSJ (subscription required):

The recent drop in oil prices could provide a welcome and surprising boost to consumer pocketbooks this fall, cushioning the economy from a falloff in home prices and construction while venting an important source of inflation pressure.

The easing of energy prices is an unexpected -- and little-noted -- positive amid economic anxiety over falling housing activity, previous energy-price increases and the possibility of recession.

"Some 99% of the questions I get these days are about the size of the drag from housing, and I think that far too few people are thinking seriously about the boost from lower oil," said Robert Mellman, senior economist at J.P. Morgan Chase. He predicted the retail gasoline price should soon hit $2.30 a gallon, based on declines that already have occurred in the wholesale price.

Mr. Mellman said lower gasoline prices should boost the annual growth rate of consumer spending a full percentage point and could lift fourth-quarter economic growth from a forecast 3%, at an annual rate, to as high as 3.7%. For now, though, his firm is leaving its growth forecast unchanged.

For now, the price drop's impact on inflation will be as important as its effect on economic growth. Edward McKelvey, economist at Goldman Sachs, expects the decline in gasoline prices to knock 0.4 percentage point off the overall inflation rate. The 12-month inflation rate was 4.1% in July. If Mr. McKelvey's calculations are correct and other prices continue their recent trend, that rate could fall to 2.4% in September, in part because a big jump in September 2005, due to Hurricane Katrina, will drop out of the 12-month calculation.

While the Federal Reserve focuses on "core inflation," which excludes energy and food prices, it blames the recent rise of core inflation on energy costs seeping into the prices of other goods and services. It is a principal reason the Fed, while leaving short-term rates alone at 5.25% last month, has said it is ready to raise them again if inflation pressures intensify. It could relax that stance if the retreat in energy prices hastens an expected decline in core inflation. Mr. McKelvey said that by boosting growth, lower energy prices could also make rate cuts less likely.