Great idea for a thread !
My opinion is that we need to watch commodity prices to really attempt to "forecast" where inflation will go. Particularly, as it has been already pointed out in this thread, the price of oil.
This is no doubt, the single most important item, given that oil has such a large and wide impact in business/industry overall.
Having said that, I believe that it would be an error to compare today to the 1970's without some adjustments.
Some ideas...
1. I do not believe the dependance on oil is as heavy as it was then.
2. I believe we are better prepared to fend off a rise in price. (other technologies, and the like).
3. the prospects of an increase in the oil price to such levels is not likely, because today's capabilities for other producers (not belonging to OPEC), and the technologies available are much better to the point that if an attractive price is reached, then suppliers will come to market to satisfy the demand more readily than then.
4. Technology (as pointed out in # 3), is better in terms of exploration and the actual production, making it less costly to increase production if so needed. (i.e. many oil sources could become economical to re-open here in the US if the price would justify it.
5. As we discovered in the 70's... (to the chagrin of the seven sisters *).... we were not "running on empty" as the brooding hens of the time had us believe... (for some reason, that crew reminds me of the Y2K Alarmist.... I will refrain from expressing an a more "open" opinion of the two lots).
* Seven Sisters = Texaco, Exxon, BP, Shell, Mobil, Chevron, AMOCO. (I have forgotten all of them, I may be missing or replacing one or two of them).
6. As for the price of commodities increasing.... I am suspect of a sustained increase, in spite of growing needs from the third world... overall, I still think that their need to capitalize their economies leave them no choice but sell as much as they can produce of the commodities in question, which they have as raw materials, and the continuous supply of cheap labor will keep the same labor cheap, therefore the "outlook" for inflation, (at least in my eyes), remain low.
7. This in turn will affect the ability/desire of the Federal reserve to increase interest rates, with the added characteristic that any serious increase in interest rates would give the so called emerging markets the boogaloo jivers fever.... and restrain the Fed to simply become the official bogey man, (to scare the hell out of investors), from time to time....
8. All of the above is of course, subject to the fact that I do not believe in forecasts anyway... |
