Today’s report of a high 4.9 percent third-quarter gain in productivity, or output per hour, strongly suggests that the commodities boom is not inflationary.
In relation to booming economic demands worldwide, commodity supplies are scarce. Over time, high commodity prices will stimulate big increases in commodity investment and production. But in the short run, the high commodity-price signal means that commodities are still scarce. It’s a relative price adjustment, not a true global inflation.
From the latest inflation report:
Thus far this year, energy costs have risen at an 11.7 percent SAAR after increasing 2.9 percent in all of 2006. In the first nine months of 2007, petroleum-based energy costs (energy commodities) advanced at a 20.6 percent rate and charges for energy services (gas and electricity) increased at a 1.3 percent rate. The food index rose at a 5.7 percent SAAR in the first nine months of 2007 after advancing 2.1 percent in all of 2006. Grocery store food prices increased at a 6.7 percent annual rate in the first nine months of 2007, reflecting acceleration over the last year in each of the six major groups. These increases ranged from annual rates of 4.0 percent in the index for other food at home to 17.7 percent in the index for dairy products.
No -- there's no inflation at all. None at all.
2 comments:
I call BS on Kudlow.
Over time, high commodity prices will stimulate big increases in commodity investment and production.
Anybody who looks at an oil price chart can see this is simply not true. We see consistently under $33/barrel between 2000 and 2003. We then see the price go from $31 in 2003 to $53 in 2005, to today where we're around $96.
If there was more oil out there to be pumped, they'd be pumping it. Furthermore, consider that in the recent past when Exxon, etc, got huge windfall profits from the increase in prices, they dumped much of that money into stock dividends. If they thought there was profit to be had from exploration and development of new sources, why would they do that?
It's simple: we've got too many people who want too much of something we're unable to produce at a faster rate. Prices will go up until demand declines sufficiently. Simple economics.
Health care is going up even more rapidly. My folks' long-term insurance, which they have never yet used in 20 years, just went up about 50% for next year, with further increases announced.
I heard some Bloomberg "expert" last night celebrate the fact oil price increases were NOT "rippling" through the economy. He claimed that businesses were not passing them on to consumers. How he could say this in light of agricultural product price rises is bizarre. Probably, he too removes food as an item of consumption.
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