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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: Mark Adams who wrote (2748)	7/22/2001 6:25:36 PM
From: ahhaha	Read Replies (1) \| Respond to of 24758

I considered oil (energy costs in general) as a basic cost input effecting production at almost every level. And compounding. Ignoring inflationary/deflationary aspects, I proposed it would act as a tax, or drag on the overall economy, regardless of pricing power. It is like an excise tax, but it isn't compounding and it isn't inflationary. It isn't inflationary because once all products adjust to the new equilibrium of oil price change, ceteris paribus prices don't change. The adjustment takes about nine months which is far faster than during the '70s. Note that inflation didn't fall in the mid '90s when oil fell from $30 to $10. Shortly after the recovery of the price of oil, the price of premium beer went up. I expected that was because the market would bear the higher cost, and the cost of making it, the bottles (packaging), of transporting it to market, of keeping it cold all increased. Later on, you have the boxboy requiring a wage increase to cover the higher heating costs of his apartment and gasoline to get to the store. These are transition prices. The point I'm trying to make is that even if oil remained constant at $30, prices would continue to rise. This has been the historical experience. The ECRI tries very hard to deny this is occurring just like just about everyone else. The ECRI gives a graph of the future inflation gauge which rises and falls. What it shows though is rising and falling in the RATE of price increase. Prices never fall. The FED has deemed a constant increase in prices as the system optimal state. I can't express just how bad this is. What we always do is adjust to an ever higher rate of inflation. This has structural bust written into it. The early drop in oil prices may have given the US a boost, which subsequently reversed, and even now the cost increases trickle through to the consumer. This kind if relative thinking is mistaken. It's like the attitude that taxes are low because now the government only takes 35% where they used to take 39%. If the US got a boost from a small reduction of the oil excise tax, it has already been eaten. The reason is that income and costs are still diverging because there are many scheduled cost increases which are still coming, and it continues to look that there will be indefinitely more. There may not be much pricing power in luxury yachts or motorhomes, but I seem to see it in staples that form a big part of most household budgets... I've explained previously in this thread why corporations do have pricing power. It's called the residual wealth effect. Things aren't so bad(thank you, FED) that employment declines, so people are willing to pay higher prices.