Posts filed under “Energy”

Inflation ex-inflation to be Official Fed Policy?

Well, it seems to be just about official: Inflation ex-inflation has formally become the policy of the Federal Reserve.

At least, according to voting Fed Governor Frederic Mishkin, who tells Bloomberg that Inflation Minus Food, Energy Is a `Better Guide’.

When reading his statements, I am reminded of the former Fed Chair Arthur Burns, who in the 1970s similarly did not want to include energy and food prices in his inflation measures. That "experiment" ended rather disastrously, with flat growth, and very high inflation, a condition that came to be known as stagflation.

Growth isn’t as weak today, and inflation isn’t as pernicious. But we do have strong commodity price increases, with GDP growth significantly slowing in the US. Add a weak US dollar versus a basket of global currencies (see America vetoes G7′s dollar alert). Then bring 2 billion new consumers into the global economy from India and China. (see Ship Shortage Pushes Up Prices Of Raw Materials), Next, add a hot war in the Middle East. Last, a Treasury Department hellbent on increasing the money supply. That’s the formula for what I call "demi-stagflation," and what my colleague Jeff Saut at Raymond James calls "Agflation."

All I ask is for the entities that measure the goods and services that make up our economy, and the bureaucracies that set government policy to accurately portray them, and stop the absurd emphasis on the non-inflationary items.   

Here’s the ubiq-cerpt:™

"Federal Reserve Governor Frederic Mishkin said inflation measures that exclude food and energy costs are a "better guide” to underlying changes in prices.

Changes in price indexes without food and energy "provide a clearer picture of underlying inflation pressures,” Mishkin said in the text of remarks to the HEC Montreal Macroeconomics and Monetary Policy Conference today. “If the monetary authorities react to headline inflation numbers, they run the risk of responding to merely temporary fluctuations.”

Mishkin argued that both so-called core and headline measures of inflation are useful to policy makers and the central bank shouldn’t rely on any one gauge. Sustained increases in energy costs can push up expectations for inflation, he said, noting that recent gains in oil are a "reminder that shocks can persist longer than one might have first expected.”

Does a 5 year run in energy prices and other commodities count as sustained?

The emphasis on Inflation ex-inflation continues . . .


Mishkin Says Inflation Minus Food, Energy Is a `Better Guide’
Craig Torres and Greg Quinn
Bloomberg, Oct. 20 2007

America vetoes G7′s dollar alert
Edmund Conway
Telegraph 1:19am BST 22/10/2007

Ship Shortage Pushes Up Prices Of Raw Materials
October 22, 2007; Page A1

Category: Commodities, Energy, Federal Reserve, Inflation

Repeat After Me: There is NO Inflation

Category: Commodities, Energy, Inflation

Intraday Reversal

Category: Energy, Markets, Psychology, Technology

ECB on Core Inflation

Category: Commodities, Economy, Energy, Federal Reserve, Inflation

Fear of a Dollar Collapse, part II

Yesterday, we discussed the potential impact of the ongoing weakening of the US dollar.

Today, we look at a few printing press Money Supply issues. Our focus: The spread between the Fed liquidity action (a/k/a Repos) and the M2 money supply measures.

This is simply a measure of how much cash the Fed is injecting into the system.

The following Bloomberg chart shows the spread between the two of these monetary measures. It is quite instructive:



Speaking of surges: As you can clearly see above (bottom left chart), the amount of MZM (repos) versus M2 during 2007 is enormous.

This means that the Fed is "inflating" at a rate faster today than it did right after 9/11, or during the deflationary scare of 2003.

As we asked Wednesday night, "What did the Fed Chair and the FOMC see that spooked them into a half point (over) reaction?"  I am not sure what is was (and we’ve discussed many of the potential issues over the past 2 years), but the Fed is obviously scared witless. 

The manifestations of this free  printing press are many: Any commodity priced in plentiful dollars will cost more. Crude is now $82; and Inflation Fears Send Gold to 27-Year High.

Why? One way to think about it is supply and demand. Print ALOT more dollars and each one is worth a little less. 

Or, consider it this way: Extracting Oil or Gold from the earth ain’t easy: We have to explore for Oil, determine where it is, how deep, what quality, etc. Then we have to use lots of heavy machinery to extract it, ship it to where it gets processed, refined, used in chemical manufacturing. Some of it gets refined into gasoline, and it is then transported to a network of gasoline stations, and it gets pumped into your car — all for less per gallon than diet Coke or peach Snapple!

For gold, the process is not all that dissimilar.

Just crank up the printing press: Its cheap and easy. But why should us gold and oil producers exchange our hard won commodities (its hard work) for pieces of paper you people are simply cranking out for free? Either give us something of real value — or instead, we will insist on more of your crappy ittle pieces of green paper.

Thus, the inflationary repercussions of a "free money" policy. In fact, every commodity that is priced in dollars can potentially see much higher prices:  Gold, Oil, Wheat, Soybeans, Copper, Timber, Corn, etc.

Its easy to understand why inflation has been called The Cruelest Tax.


BTW, for those of you without a pricey Bloomberg terminal on their desks, a good source for (free) data of this kind is the Federal Reserve Bank of St. Louis’ publication, Monetary Trends. There are always a solid collection of charts showing money supply, economic conditions, etc. Not to get too wonky on you, but this is simply pornography for econ geeks.

There are a few charts after the jump worth reviewing. For the less visual of you, they show that Money Supply continues to grow at a rapid pace, that bank borrowings are increasing.


Monetary Trends
Federal Reserve Bank of St. Louis’
October 2007

Where Crude Goes Now May Depend on Dollar
Futures Close Near $82
WSJ, September 20, 2007; Page C1

Inflation Fears Send Gold to 27-Year High
Weakening Dollar Also an Influence; Metal Hits $732.40
WSJ, September 21, 2007; Page C6

Read More

Category: Commodities, Credit, Currency, Energy, Federal Reserve, Inflation

Open Thread: Falling Dollar, Rising Gold, Oil, Inflation

Category: Commodities, Energy, Federal Reserve, Inflation

Agriculture Break Out Relative to Energy, Commodity Index

Category: Commodities, Energy, Technical Analysis

$77 Crude ?

Category: Commodities, Energy, Trading

Oil versus Natural Gas

Category: Commodities, Energy, Investing, Markets, Technical Analysis

Crude Remains Strong Despite Inventory Build

Category: Commodities, Energy, Index/ETFs, Psychology, War/Defense