Rising Crude Oil Pushes Consumer Prices Higher

The Big Picture | 11/12/07 | Barry Ritholtz

[sbMKE]

Rising Crude Oil Pushes Consumer Prices Higher Monday, November 12, 2007 | 09:00 AM in Commodities | Consumer Spending | Federal Reserve | Inflation

I'm not sure what to make of the Core-heads -- that motley collection of blinker-eyed ostriches who either claim there is not much in the way of inflation, or refuses to acknowledge the impact Oil prices has on everything else we consume. Despite all of the obvious price data and anecdotal evidence to the contrary, they insist there is little or no inflation.

Policy makers who believe this tripe are making a serious mistake. Why> Because of what Oil is used for: In the US, only half of the Crude Oil we consume is for gasoline and other energy products. Petroleum makes its way into many, many other manufactured goods.

Apparently, the Core-heads must not ever go shopping. Despite the absurdity of looking at near $100 Oil and claiming there is no inflation, it appears they don't look at MANY other prices either.

To wit, this discussion on the push through impact of Crude prices on the costs of so many other consumer goods:

"Let the consumer beware: Costs are going up on almost everything the average American family consumes.

Blame it on crude oil.

The rocketing price of crude oil is not only sharply hiking the costs of fueling the car and heating the home, but is bidding up prices on the raw materials that go into goods from produce to perfume.

At the same time, the push to develop ethanol as an alternative fuel through corn and similar products is inflating the cost of feed for cows, pigs and other farm animals - and that also increases the prices consumers pay.

What specific products are impacted by Oil prices? Well, anything that gets shipped -- which includes pretty much everything.

• Wrigley (WWY) raised prices 10% in the second and third quarters on its popular gums and candies.

• Hershey Co. (HSY) On an earnings call last month, the COO said it may very well jack prices again in January when there's a "better view of the commodities situation."

• Kraft Foods Inc. (KFT) CEO told investors they had to raise prices to cover "input costs" of raw materials for food as well as resins for containers and Wax for packaging frozen foods.

• Procter & Gamble (PG) lifted its prices on Coffee by 8%, on fabric softeners by 9%. The CFO said more price hikes are coming:

- 5% - 12% increase on personal cleansing products in January; - 5.5% rise on paper products in February; - 5% - 9% on disposable diapers - 3% to 5% on blades and razors in February.

• Starbucks Corp. (SBUX) boost prices by 9 cents per beverage (to cover milk price rises), and then another 5 cents (rising costs of labor and energy).

• Colgate (CL) will raise prices on pet foodin Q4 by 6% - 8%.

• General Mills (GIS) has raised prices on some, while shrinking the size of others. The CEO said "We are actively monitoring the need to pass along additional input cost pressures as they arise."

• Cooper Tire & Rubber (CTB) raised tire prices 5% in June, and another 4% in October; Bridgestone, Firestone, Fuzion and other tire lines also raised their prices by about 5%.

~~~

I am not saying everyone who emphasizes the Core to the detriment of true inflation is both a liar and an idiot -- but if you were just pick one one of those monikers, you won't be too far off . . .

http://bigpicture.typepad.com/comments/2007/11/rising-cost-of-.html

[sbMKE]

Quite a few of these economy and inflation threads devolve quickly into whistling past the graveyard. Truth is, our economy is running fast into a wave of inflation.

[mvpel]

But wait, I thought Fed Chairman Bernacke told Rep. Paul that only people who buy imported goods would feel the effects of higher prices caused by inflation of the money supply?

[SouthTexas]

Crude prices are falling.

[mysterio]

Now, come on. That’s just not possible. The oil industry shills told me I could just choose not to buy fuel! Let’s just all choose not to buy fuel. Who knew it could be so easy?

[mvpel]

I think the OPEC folks are starting to realize that if they don’t act quickly, formerly non-economic sources of oil like shale and tar sands will take over their market, and oil isn’t very useful to them if they can’t sell it.

[mysterio]

Better yet, maybe we can break oil’s monopoly with an innovative new fuel that we can make here at home. Watch the price drop through the floor if oil gets a competitor.

[Hydroshock]

Economy/Credit/Housing Issues Ping List

If you want on or off this list let me know.

[mvpel]

There’s a group at UNH working on algae-source biodiesel.

[DustyMoment]

Law of Unintended Consequences Alert!!! With all of Bush's (including his pappy's) infatuation with globalism, this is a natural consequence. When we began seriously "outsourcing" jobs to India and China, guess what? The oil and gas that WE needed for those jobs became a need that India and China needed for THEIR economies. IOW, we created something of a void by shipping out the jobs (and, in some cases, entire industries) but trying to hold onto the gas and oil those jobs required. It just doesn't work that way!

Still, there MAY be a silver lining in all of this. As gas and food prices rise (due to higher delivery costs stemming from higher gas prices) more and more people may finally get on the bandwagon to press for energy independence and force the Congress to stop playing PC games and open ANWR and other places for drilling and processing and even building new refineries. The Sierra Club, et al, may finally lose their influence if this all comes to fruition.

[Scarchin]

W should declare a national emergency and let the oil companies drill wherever the F*** they want!

[mysterio]

Good news. I think there's real potential in biodiesel.

My band played a benefit concert to raise money for biodiesel research back around 2000 when nobody really cared or thought about it. It was a real break for us, got to play with some more well known acts. We got about one song in and the biodiesel generators clogged and shut down, lol.

I think it was mostly due to the fact that hippies aren't good at maintaining large generators, however.

[Riodacat]

Better yet, maybe we can break oil’s monopoly with an innovative new fuel that we can make here at home.........

That's something you may want to work on during your lunch break.. ;)

[Red in Blue PA]

50 to 98 to 96 is NOT falling.

[tobyhill]

Get the crack-head, gloom and doom speculators out of market and the price for crude will drop 40%. Right now they’re using every sneeze in the world to justify the always wrong outlook. It was supposed to be the “worst” ever hurricane seasons for the past two years and that drove the prices up but now that it’s been proved to be more global warming crapola hype why aren’t prices declining? Answer, the speculators moved on to the next excuse, colder than usual winter which again won’t happen. True supply and demand is independent of futures always wrong speculators. If one is to believe these speculators any in their rhetoric, why haven’t we run out by now with China growing 10-12% annually?

[Renegade]

Check this out !!

“We want to inform you that, because of rapidly escalating fuel prices, Carnival has implemented a fuel supplement of $5 per person per day. The fuel supplement, which applies to the first and second guests in a stateroom only, is not to exceed $70 per person per voyage and is effective on all new and existing bookings for voyages departing on or after February 1, 2008. Implementing this fuel surcharge was a difficult decision but one that we feel was necessary in today’s challenging economic environment.”

[RSmithOpt]

Don’t matter now...it will take 2-3 years for the inflation to settle out salaries (hourly wages) to COLA. In the meantime, Wally World and everyone else will see the pull back in spending.

[M. Espinola]

"Crude prices are falling."

The energy market is bouncing from bullish supply reports (pushing prices higher) to bearish supply reports (the prefect time to take some sudden sky-rocketing profits in the process).

The basic fundamentals clearly indicate longer term price trending remains bullish, with numerous supply unstable wildcards out there such as OPEC's Iran, Nigeria, Iraq, Venezuela, plus the Russians, who are supporting all of America's worst enemies with arms shipments. Throw in the Turks threatening to attack oil rich northern Iraqi Kurdistan, making a regional volatile situation even more so.

The unknowns of the heating oil / natural gas winter season are getting under way. In addition, to ongoing potential terrorist attacks bullishly effecting energy prices, as well as adversely jolting stock index prices, plus adding more fear & apprehension into the financial markets in general which are already deeply concerned with the banking industry's sub-prime debacle, then throw in the lack of newly constructed oil refineries, being another unresolved problem, making for continued tight refined supplies, translating into continued higher prices (with normal profit taking sessions.

Oil falls below $95 as Saudi considers output rise

Note the headline's wording, as if slightly below $95 a barrel is somehow 'cheap', considering crude oil prices were $25 lower during this past summer! That's an increase of 25K+ per NYMEX crude oil call options - in under four months!

OPEC Won't Raise Output at Summit, Gulf Officials Say (Update1)

Source: UK factory gate inflation surges to 12-year high

[SouthTexas]

Prices are falling TODAY. Currently -2.11 to 94.21

[thackney]

In the US, only half of the Crude Oil we consume is for gasoline and other energy products

Stopped reading here when it became obvious the author is either an idiot or a liar.

US Petroleum Product Supplied
http://tonto.eia.doe.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_a.htm

[MrLee]

OK, how many years worth of oil would drilling in ANWR actually produce?