Friday, Apr 13, 2007
Oil Price Rising because of Lack of Supply
Reuters: Oil pushes above $64 on U.S. gasoline supply worry
Rising oil prices? No problem! Repeat after me: "There is no inflation in the US or Europe".
Posted by royston @ 12:08 PM (185 views) Add Comment
15 Comments
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1. Rickyb said...
Increasing energy prices do increase inflationary pressures, but the link is not straightforward. The increases in energy prices over recent years have not yet had a significant impact on the inflation rate because overall energy consumption has remained fairly stable.
2. waitingfor hpc said...
well tell that to my customer whose energy bill has gone from £300K to 900K!!!!! Runnning a factory over here is doomed.
3. Shipbuilder said...
Not to worry, all the 'experts' agree that inflation will ease off by the end of the year.
4. paul said...
"Increasing energy prices do increase inflationary pressures, but the link is not straightforward. The increases in energy prices over recent years have not yet had a significant impact on the inflation rate because overall energy consumption has remained fairly stable."
Erm. So, if I ordered say 1,000 barrels a week at $50 each, my total energy bill last week was $50,000. This week the price has gone up so I pay $68,000 per week now.
But inflation hasn't gone up? Why would that price increase not affect inflation?
In other words, in the absence of a demand increase or a supply decrease, price increases are the definition of inflation.
5. C'mon Correction said...
I think a lot of inflation is still buried deep IMHO. I would say that inflation has a LONG way to go yet, sure we'll have month on month differences but five years from now we'll still have persistent inflation while interest rates will be 7% plus. Either that or we'll have a recession and a big asset price crash in that time.
Wage inflation in particular is like a coiled spring at the moment, as the younger generation start to replace the old over the next ten years it's going to explode.Either that or we'll have a recession and a big asset price crash !
6. Houseoflords said...
I think I understand what Rickyb is getting at. If oil goes up 10% how does that affect an apple that flew across the world? Not much for 2 reasons: airlines etc are on long term contracts so don't get affected by day to day fluctuations. Also, the amount of oil per apple is so small that the increase will get absorbed most likely by the supplier. The same with all the pesticides etc - it would take a long time for things to travel through the system to the consumer and again, manufacturers will be on long term contracts so won't pay spot prices.
So, you're probably looking mainly at car travel and I don't know how much that is used in inflation. No doubt not much as they know it's going up.
7. cyril said...
I don't really see your point Rickyb: energy consumption has remained stable, therefore energy prices have no effect on inflation???
You don't work for the Bank of England do you?
8. paul said...
You don't work for the Bank of England do you?
Hehe. Nice one cyril.
9. maddison said...
Wait.... energy prices can act as a sort of tax. When the price goes up we still buy pretty much the same amount of petrol etc which leaves us less money to spend on the basket of goods as it were. This means that shops etc find it harder to raise prices. It is the difference between demand led inflation and cost led inflation.
10. monty said...
All rather nebulous arguments since it is a declining dollar that has driven the price of oil over $64. I'm lost as to how that would affect inflation in Europe though. Royston?
11. royston said...
Monty,
To the best of my knowledge, we pay for our oil in dollars.
12. monty said...
And we buy dollars with our (currently) mighty pounds.
So just how's that going to push up inflation here?
13. royston said...
First, the markets have been talking about and pricing in lower oil prices going forward. The oil price is not falling. Now, if you are saying that it's really a falling dollar issue rather than an issue in the underlying commodity, then I am no less worried. I don't see why the UK is any more fundamentally sound than the US. I accept that the US is bloated on too much credit, but so is the UK. So, you might ask, why has the pound strengthened against the dollar? I believe this is a blip and will correct in the coming months.
14. paul said...
I can see that a falling dollar could be creating this inflation. It's still inflation though, because the dollar today is worth much less in oil terms than yesterday. Still inflation.
15. confused76 said...
Energy prices are rising in dollar terms. If you consider the strength of the pound, we have had much lower energy inflation here than in the US. Last year's winter was an exception, much to do with cold weather and natural gas supply constraints (having to import gas from continental Europe). BTW, notice how utility companies were eager to sell "rate-guarantee" contracts last year, they knew gas prices had peaked!
We will have lots more energy driven inflation (and on other imports as well) if pound weakens. It will be a big headache for BoE if they want to lower IR (that will weaken the pound) and avoid inflation.
If the dollar drops further we will not have inflation for that reason, but we will export (more) jobs to the US, in fact we will probably have more unemployment and deflation.