I think Bob's reasoning is this:
Most consumer items do not have a high energy content at the product manufacturer or at the manufacturer's material suppliers. Therefore, higher fuel costs have a very small impact on production costs.
Transportation costs of products shipped from producer to retailer will go up, but also only slightly. For instance, a typical cross-country truck carries 20 tons of goods. That's 40,000 pounds. On a per-pound basis, fuel cost is fairly insignificant. For instance, a truck traveling 1,000 miles will use less than 200 gallons of fuel. If the price of fuel went up $1.50 per gallon, that would result in a $300 increase in the cost of the payload. That would be a lot of pain to the independent truck driver, as he would probably drive 500 miles per day and therefore loose $150 per day from his income. But if you do the math, that $300 of increased fuel cost adds less than a penny of cost to each pound of goods shipped.
Higher energy costs directly affects the consumer more (because of generally lower amount of discretionary funds) than it affects the producer or the shipper.
Inflation only exists if the prices of goods and services can be increased and passed on to the consumer. Producers and shippers may want to pass on higher fuel costs but cannot because of the lowered purchasing power of the consumer -- both consumers and producers have to pay the same increase in energy costs but the consumer has less ability. Therefore, energy prices are not inflationary.
Even if you want to hold on to your view that energy costs are inflationary, it is usually a one-time event. For instance, suppose the cost of energy doubles in a particular year. History shows that it wont double every year. Once the increases have been absorbed, that is usually the end of it for quite a few years. |
