Smart_Money,
While the phenomena you describe (tires, electricity, gas bill etc. prices going up) are real, they are not inflation per se.
Inflation is a general lessening of the value of money, typically caused by an imbalance in the money supply, and accompanied by increases in wages and cost of borrowing. You point out correctly that there has not been a corresponding increase in wages lately, and interest rates (consumer and government) are way down and seem to be staying that way. Foreign exchange rates also indicate no lessening in the perceived value of the dollar -- especially interesting given the low interest rates in the US right now.
What we are seeing is an increase in the price of energy across the board, including oil, natural gas and electricity. Things made out of oil (plastics, gas for the SUV, etc.) will become more expensive when oil is more expensive, just as books cost more when paper costs more. Watch for energy-intensive things to start costing more, too. For example, aluminum takes a great deal of electricity to produce. I would expect it to increase in cost soon (if it has not done so already -- I don't really pay attention to aluminum prices).
Surprisingly, it is my observation that the increase in oil prices is at least in part due to better forecasting of demand, and more precise management of production by the oil & gas companies. When, in the past, even one major producer found themselves with an oversupply problem, they would cut prices to move the inventory. This would keep prices down across the board.
Now that the producers are doing a better job of refining just enough to meet demand, they can keep prices higher for their benefit. Given recent consolidation in the industry, this is likely to continue. It should create an opportunity for new entrants into the energy market -- but that is one capital intensive market into which to jump on spec, so who knows just what will happen.
I guess I hope that the oil companies will remember the days of special, punitive taxation levied against them specifically if they squeeze the rest of the economy too hard, and ease off on perfectly tight control of production and as much profit as they can squeeze in the sort-term, in favor of nice, fat but sustainable margins for the long-term.
Rick. |
