Rising Crude Oil Pushes Consumer Prices Higher
I'm not sure what to make of the Core-heads -- that motley collection of blinker-eyed ostriches who either claim there is not much in the way of inflation, or refuses to acknowledge the impact Oil prices has on everything else we consume. Despite all of the obvious price data and anecdotal evidence to the contrary, they insist there is little or no inflation.
Policy makers who believe this tripe are making a serious mistake. Why> Because of what Oil is used for:
In the US, only half of the Crude Oil we consume is for gasoline and
other energy products. Petroleum makes its way into many, many other
manufactured goods.
Apparently, the Core-heads must not ever go shopping. Despite the absurdity of looking at near $100 Oil and claiming there is no inflation, it appears they don't look at MANY other prices either.
To wit, this discussion on the push through impact of Crude prices on the costs of so many other consumer goods:
"Let the consumer beware: Costs are going up on almost everything the average American family consumes.
Blame it on crude oil.
The rocketing price of crude oil is not only sharply hiking the costs of fueling the car and heating the home, but is bidding up prices on the raw materials that go into goods from produce to perfume.
At the same time, the push to develop ethanol as an alternative fuel through corn and similar products is inflating the cost of feed for cows, pigs and other farm animals - and that also increases the prices consumers pay.
What specific products are impacted by Oil prices? Well, anything that gets shipped -- which includes pretty much everything.
• Wrigley (WWY) raised prices 10% in the second and third quarters on its popular gums and candies.
• Hershey Co. (HSY) On an earnings call last month, the COO said it may very well jack prices again in January when there's a "better view of the commodities situation."
• Kraft Foods Inc. (KFT) CEO told investors they had to raise prices to cover "input costs" of raw materials for food as well as resins for containers and Wax for packaging frozen foods.
• Procter & Gamble (PG) lifted its prices on Coffee by 8%, on fabric softeners by 9%. The CFO said more price hikes are coming:
- 5% - 12% increase on personal cleansing products in January;
- 5.5% rise on paper products in February;
- 5% - 9% on disposable diapers
- 3% to 5% on blades and razors in February.
• Starbucks Corp. (SBUX) boost prices by 9 cents per beverage (to cover milk price rises), and then another 5 cents (rising costs of labor and energy).
• Colgate (CL) will raise prices on pet foodin Q4 by 6% - 8%.
• General Mills (GIS) has raised prices on some, while shrinking the size of others. The CEO said "We are actively monitoring the need to pass along additional input cost pressures as they arise."
• Cooper Tire & Rubber (CTB) raised tire prices 5% in June, and another 4% in October; Bridgestone, Firestone, Fuzion and other tire lines also raised their prices by about 5%.
~~~
I am not saying everyone who emphasizes the Core to the detriment of true inflation is both a liar and an idiot -- but if you were just pick one one of those monikers, you won't be too far off . . .
>
Source:
Oil's long tail
Jennifer Waters
MarketWatch, 8:17 PM ET Nov 9, 2007
http://tinyurl.com/2m7c2c
Monday, November 12, 2007 | 09:00 AM | Permalink
| Comments (33)
| TrackBack (0)
add to de.li.cious | 
digg this! | 
add to technorati | 
email this post
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00e54f7f32a38833
Listed below are links to weblogs that reference Rising Crude Oil Pushes Consumer Prices Higher:
Comments
cough,muckdog,cough...
Ciao
MS
Posted by: michael schumacher | Nov 12, 2007 9:04:04 AM
For the longest time about (1980 - 2000) Core inflation was higher than Total inflation when averaged out over a year or two.
But these past 5-7 years have seen an unbelievable decoupling between Total and Core and the Core-heads haven't noticed it yet.
Maybe they are forecasting a 3 year recession allowing oil to fall to $20 and that brings the total inflation line under Core long enough to balance the two out ?
Posted by: Michael Donnelly | Nov 12, 2007 9:11:05 AM
The labor price of Java developers dropped 15% the last year.
Posted by: Mort Glickman | Nov 12, 2007 9:28:52 AM
"The labor price of Java developers dropped 15% the last year."
I suggest you call the campaign strategists for the Republican presidential candidates. This sounds like a slam dunk political winner that shall reassure every voter in America concerned with the state of the economy.
Posted by: Francois Theberge | Nov 12, 2007 9:45:02 AM
"I am not saying ... is both a liar and an idiot".
I like the "AND". My take is that some are just liars, the others are plain idiots.
It is not that the core number has no technical use. It does. But now it is being used to deceive the general population, and that taints the whole thing.
Posted by: mhm | Nov 12, 2007 9:50:49 AM
They are liars, cheats, and thieves but not idiots.
Only one sure cure. Tall tree - short rope.
Posted by: Ross | Nov 12, 2007 10:02:11 AM
Why are L/T interest rates near record lows if inflation is understated and rising? I thought fixed income investors were "smarter" than equity investors.
~~~
BR: Perhaps the fixed income markets are expecting a major economic slowdown and/or Fed rate cuts.
You should consider taking an Economics 101 class, Dan
Posted by: dan | Nov 12, 2007 10:19:08 AM
> The labor price of Java developers dropped 15% the last year.
For the Java developers in question, that's a reduction in wages. Do you think it's the 'skills gap' that is, uh, destroying their buying power?
Luckily I'm a C# developer, so the rules of economics don't apply in the same way to me (Just kidding).
Posted by: pmorrisonfl | Nov 12, 2007 10:25:04 AM
You really come across as 'The Panicky Guy' in this article. Take a deep breath.
Posted by: jimbo | Nov 12, 2007 10:28:57 AM
I believe Marie Antoinette summed up rather nicely the general attitude of liars well-compensated on the public payroll: "Let them eat cake."
Which, of course, really means "let them eat sh*t."
Posted by: Bud Hovell | Nov 12, 2007 10:30:26 AM
I spent the weekend reading Michael Pollan's The Omnivore's Dilemma, which initially got me to thinking about the gigantic gov't push to ethanol that is mentioned in the above quote. Then I had another forehead-slapper when I read these quotes:
One-fifth of America's petroleum consumption goes to producing and transporting our food.[...]
Assuming [...] twenty-five pounds of corn a day [a steer] will have consumed in his lifetime the equivalent of thirty-five gallons of oil -- nearly a barrel.
And yet, according to the former agricultural secretary this wasn't supposed to happen!
Posted by: a guy called john | Nov 12, 2007 10:31:35 AM
I buy food and gas with credit cards, so these increases will not affect me for several years, upon which time the economy will be humming along quite healthily.
Posted by: Douglas Watts | Nov 12, 2007 10:35:41 AM
"I buy food and gas with credit cards, so these increases will not affect me for several years, [...]"
Check the interest rates for carrying that cost, John, and I guarantee you an epiphany.
Posted by: Bud Hovell | Nov 12, 2007 10:40:20 AM
bud-
Ber"hank"ce already gave us our Antoinette moment when he lowered rates for his banking buddies.
and he stands ready to do it again.....I'm actually surprised that nothing was done over the weekend. The Fed likes to do sneaky shit when they think no one is looking (bonds closed early friday and closed today).
Ciao
MS
Posted by: michael schumacher | Nov 12, 2007 10:53:39 AM
Dan, I think you hit on what has become a
HUGE investing "catch 22".
There is so much USD "money" chasing bonds (assets)
in money funds, mutual funds, China, oil money, etc...
that the asset/bond prices are in a bubble.
High bond price=low yield.
Completely destroys the concept of "textbook investing" or what a person may have learned years ago in college about how things should work.
Posted by: MarkTX | Nov 12, 2007 11:02:01 AM
John Hussman out with a recession call this morning...says it's "probable" and "immediately ahead"
Full text here:
http://www.hussmanfunds.com/wmc/wmc071112.htm
Posted by: glenn_in_MA | Nov 12, 2007 11:03:36 AM
Barry;
The items u list are small ticket items that we purchase every month. The drop in Big Ticket items that we purchase every 4 or 5 years is more than compensating. (/off)
Posted by: tjofpa | Nov 12, 2007 11:25:41 AM
tj: what, like houses?
Posted by: a guy called john | Nov 12, 2007 11:44:39 AM
FYI, Federal Reserve Governor Frederic Mishkin said last month that changes in price indexes without food and energy "provide a clearer picture of underlying inflation pressures. If the monetary authorities react to headline inflation numbers, they run the
risk of responding to merely temporary fluctuations." Talk about a Core-head...
Posted by: Boom2Bust.com | Nov 12, 2007 11:57:36 AM
Well, Bush senior was ridiculed for his surprise at checkout scanners. There sure was a reason for his ignorance, namely not shopping in the stores of the riffraff, and probably having his shopping done by his handlers.
I presume all the pundits and little leg-biters still do their own shopping, through the more prominent of them possibly also push it on to the "help" or the spouse.
Aside from that, when one is in the shill business, one can probably manage a good deal of cognitive dissonance to maintain that paycheck.
Posted by: cm | Nov 12, 2007 12:12:34 PM
But BR, despite the few things you've listed here, the PPI and CPI show no evidence that rising oil prices have had much of an impact. Maybe because as folks send more money to OPEC, then spend less money at the malls?
And your hand-picked list of rising prices didn't include that big-screen TV you went shopping for this weekend. How are prices there? How are prices on all technology goods? Printers, scanners, cameras, PCs, etc?
(I just bought a pen tablet for my PC, and it was extremely cheaper and of higher quality than the ones I was looking at just a few years ago).
Regarding rising perfume prices, my company recently implemented a "scent-free workplace." Save the Old Spice for the night out with Mrs. Big Picture!
LOL
The labor price of Java developers dropped 15% the last year.
I'm in IT. Tons of 22 yr old Java programmers coming out of college and available overseas. Supply vs. Demand.
Posted by: Muckdog | Nov 12, 2007 12:25:44 PM
When everything goes up in price, we have inflation. When some very important items go up but wages don't go up, then people have reduced purchasing power -- but there's not inflation.
I don't know whether inflation is worse than people say it is, but it could be that higher oil prices are just a reflection of scarce oil rather than an oversupply of currency in the economy. People will have shift their spending away from oil where possible or spend less on other items.
Posted by: undergroundman | Nov 12, 2007 12:42:00 PM
"I just bought a pen tablet for my PC, and it was extremely cheaper and of higher quality than the ones I was looking at just a few years ago"
That is the opposite of what's going on with edible goods. They were cheaper, bulkier and of higher quality just a few years (months?) ago.
Posted by: mhm | Nov 12, 2007 12:42:46 PM
If Muckdog ate his keyboard instead of food from the grocery store, would that be the same as eating his words?
p.s. Java developers are cheap because Java sucks :)
Posted by: wnsrfr | Nov 12, 2007 12:53:52 PM
just to make what should be some obvious points:
everyone buys food. everyone buys gas. everyone does so every week of every year. aggregated, the extra amount that a family of four pays in fuel and food in a year is more than the cost of that new tv that they don't need to survive. it's more than the cost of the new tv and the new camera combined. it's more than the cost of a bunch of stuff that people simply Do Not Need.
btw: anecdotally, the parking lot at my grocery store was packed on saturday. also, on friday night there was a line into the street at the cheapest gas station that i know of in chicago. should i infer that the economy is rocking based on this evidence?
Posted by: a guy called john | Nov 12, 2007 12:58:10 PM
