Oil at $96, Gold at $800 (Fed belatedly worried about inflation)

Everybody loves an easy bartender, pouring generous drinks, filled with lots of alcohol.

No one likes the hangover the next day.

Which is what we are experiencing today.

Gee, who woulda thought that cutting rates yet again would spark another round of dollar weakness AND commodity inflation?  The inflation picture remains front and center, as indicated by yesterday’s FOMC statement, which noted that the risks of weaker growth and higher inflation were balanced.

Stop to consider for a moment what that means. We know that, notwithstanding yesterday’s bogus GDP number, growth has slowed, the consumer is starting to tire, Housing is an enormous economic drag, and the credit crunch continues to be a worry. DESPITE ALL OF THIS, INFLATION RISKS ARE ROUGHLY BALANCED.

Consider how bad INFLATION must be, if that’s the case. A few recent examples:

P&G, Colgate Plan to Increase Prices: Higher commodity costs will increase prices between 3% and 12% on consumer stables like diapers, fabric softener and pet foods. P&G gave an anemic outlook for the current quarter, noting it was seeing some slowdown in the U.S. market as consumers are hit by high energy costs and the housing downturn. "There is not going to be much customer resistance [to price increases]
because they are seeing the same energy and commodity cost increases
." -A.G. Lafley, P&G’s CEO

Kraft Foods whose third-quarter profit fell 20%, is the latest consumer company to warn that rising commodity prices will continue to take a big bite out of profits. High commodity costs have put the company in somewhat uncharted water. To offset high dairy costs, Kraft has raised cheese prices by an average of 7% this year. But those increases, besides driving some consumers away, weren’t sufficient to offset higher raw-material costs.

Commodity Prices Rise to Record on Slumping Dollar: Commodity prices rallied to a record as a decline in the dollar enhanced the appeal of energy, grains and metals as a hedge against inflation. The UBS Bloomberg CMCI Index of 26 commodities rose to 1,271.20 today, the highest ever. Commodities have gained 3.9 percent this month. The UBS Bloomberg gauge jumped 7.8% in September and was headed for a sixth straight annual gain.

By Rail or Road, Travel Costs Rising in New York Region: The agencies that operate the buses, trains, tunnels and bridges that spill commuters into Manhattan are in the midst of one of the biggest and most sustained rounds of fare and toll increases in decades. The MTA board wants to raise tolls and fares on its subways, buses, commuter rail lines, bridges and tunnels by an average of 6.5 percent. The Port Authority of New York and New Jersey is hoping to raise tolls by at least 33% on its Hudson River crossings early next year.

Record Diesel Prices Squeeze Commercial Construction: Average price of diesel, $3.157, ties the all-time high set two years
ago. “This will squeeze contractors’ margins on existing projects and
push up bids on future work, especially highway and other projects that
require a lot of earthmoving, which is very diesel-intensive."

Business-Travel Costs on the Rise: Business travel costs, including airfares and hotel and car-rental
rates, will continue to rise next year, and companies will respond by
cracking down on employees’ compliance with corporate travel policies,
according to the American Express 2008 Global Business Travel Forecast,
released this week.

Small Firms’ Data Indicate Persistent Inflation

FedEx to Raise Rate For Express by 4.9%: FedEx said it plans to increase rates on air shipments by its largest percentage in more than a decade early next year, reflecting the company’s need to squeeze more revenue from customers amid a weakening economy to cover the costs of its China expansion and the rising price of fuel. The move will raise the cost of the average U.S. air package 6.9% on Jan. 7, compared with this year’s 5.5% increase, which had been the biggest jump in 10 years.





Did I miss any? Use the comments to post additional inflation stories . . . .

By Rail or Road, Travel Costs Rising in New York Region
NYT, November 1, 2007

Dollar Ben
November 1, 2007; Page A18

Commodity Prices Rise to Record on Slumping Dollar
Millie Munshi and Pham-Duy Nguyen
Bloomberg, Oct. 31 2007

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What's been said:

Discussions found on the web:
  1. Joe Klein’s conscience commented on Nov 1

    What will the toll be for going across the GWB if the toll increase is passed? 33% seems a bit much. What’s “Helicopter” Ben gonna do when a Dem becomes President in ’09?

  2. Costa commented on Nov 1

    If the LIRR increase fares can they at least have a quite car

  3. Big E commented on Nov 1

    Remember in 2006 when the uptick of gas prices was moving ahead of the price of oil? Here in San Diego, it was ridiculous – oil would move up a $1/barrel, and gas would jump $.10/gallon.

    And now this year, oil is significantly higher, but gas prices have remained stagnant (though climbing slowly). Is there ANY doubt now that the oil companies manipulate the price of gasoline?

  4. michael schumacher commented on Nov 1

    after the regional elections are over you will see one of two things.

    Crude oil tumbling to stay in check with the price of refined gasoline…not very likely or

    The price of gasoline mysteriously jumps up after next tuesday (election day) to meet the price of still climbing crude.

    Remember the price of gasoline jumped up on election day (last year) after the little “adjustment” on the GSCI caused it to fall off a cliff in the lead up to the election.

    Gasoline will be up going into Tuesday and then it will go nuts on the next “shortfall” in inventory…nevermind that it( the shortfall) had no affect on gasoline in the prior three weeks of “shortfalls”……

    how this is any different than the action in the overall market is beyond me. We have had our economy hijacked by traders that learned how to pump in the oil pits.


  5. Eddie commented on Nov 1

    If a stock were melting up like the price of gold, everyone would be saying to stay away, it’s a bubble.

    Why is it different now, somehow?

  6. JJ commented on Nov 1

    Damn. I was hoping to avoid the whole eating-dog-food-for-dinner thing until I was at least 70 or so…..

  7. Jay commented on Nov 1

    If the economy is doing well, the GDP charged ahead nearly 4%, and we have had inflationary pressures for the last three years, why hasn’t personal income for the average American kept pace?

    If the major financial institutions are unable to make money without practicing questionable accounting gimmicks (see:


    ), what does that say about the state of the underlying economy? If you have reason to question every statistic the government puts out on the state of the economy, such as unemployment, inflation (be it “core” or anything else), and GDP, then who or what in this market can you possibly trust?

    With all this and the collapsing dollar, if I were a foreign investor, I would be running and screaming away from all U.S. markets and investments–you’d do better to put your trust in the financial and government institutions of a central African bourse.

  8. michael schumacher commented on Nov 1

    look at a chart once and a while eddie…

    with all the losses that are still unaccounted for and the ones that have been reluctantly taken. The Stock market HAS melted up in spite of all of the rhetoric and talk.

    Gold?? and stocks…..hmmm let’s try to keep apples with apples and oranges with oranges. Or does the fact that inflation is presented as no problem (when in fact it most certainly IS) have more to do with the price of gold than a pump job (as you are suggesting)

    Nice try..


  9. dblwyo commented on Nov 1

    Barry -excellent post pulling a lot of things together and making good points. Fed is between a rock & a hard place and that’s not fingers being ground away. Here that screaming – oops…that us, isn’t it ?
    There’s more and a deeper story on the inflation front and the headlines from Kraft, P&G, et.al. really highlight. The scariest thing isn’t CPI or CPIx per se. It’s that over the last several years the cumulative changes in PPI vs CPI are wide, growing and accelerating. This is a cusp point. Try here for charts: http://tinyurl.com/2anlj6

    Going with that will not only be what we see but escalating profits and earnings pressures. While following market and economy trends will get you so far the question is what asset classes and then what companies will do well in this environment.

    In other words it’s going to be (in addition) about understanding company performance IMHO.

    That’ll mean parsing some really hard stuff on what makes business work. Try this for a pass at Home Depot.
    HD Performance Re-visited: http://tinyurl.com/2yesj9

  10. Logic commented on Nov 1


    Personal income has been going up. Today it was reported that personal income was up 0.4% for September. That is up 4.8% annualized.

  11. s commented on Nov 1

    1. Inflation isn’t in the dictionary anymore. I has been replaced with a more stalinesque worker- productivity

    2. Standard-of-living also removed from unabridged version. It now links to indentured servant

    3. Pre-bellum now includes link to Cramer America: last remaining bull market in America discover while in Utah rehab: Wives – Buy Buy Buy

    4. Utah declared a bubble – fed deems risk of overpopulation balanced by servitude – expect further rate cuts

    5. Shining light on hill is forced to be extinguished due to high oil prices

    6. Neo-liberal democracy new addition to nomenclature; wiki links to 1984, gulag and sovereign wealth fund

    7. Newspapers face double conundrum: record readership erosion and massive increases in ink costs as they face growing threat from the unconventional black swan: M3

    8. As further evidence that naysayer of EMH are bunk, it is revealed that Gold is edible after all

    9. …so is silver and platinum

    10. Man vs. Wild viewer ship hits all time record while United States seeing dirt shortage on new bestseller: Kim Jong-il Kitchen

  12. Neal commented on Nov 1

    Look at it this way:

    Through rate cuts the newly “data driven” Fed will drive more people and businesses into bankruptcy thereby justifying more “data driven” rate cuts.

  13. Brian In Seattle commented on Nov 1

    Here in WA state, diesel is anywhere from 3.60-3.85 a gallon and regular grades of gasoline are anywhere from 3.15 for regular-3.50 for premium. Crazy.

  14. Estragon commented on Nov 1

    Brian In Seattle,

    If you think that’s crazy, consider this comparison chart.

    The UK, for example, is closing in on US $8 per (US) gallon.

  15. dan commented on Nov 1

    BR, how should we think about declining housing prices and its influence on inflation? Also, yesterday you noted competition among the retailers is creating bargains for this holiday season – does this influence the rate of inflation? thx.

  16. Steve commented on Nov 1

    I think that inflation effects poor people more than rich. the things that you need gas,health ins, food, education, rent are all going up. if you are below the median income i would guess that inflation is running at a much greater rate (maybe more than 15%). Inflation for the rich is just not as great a factor. goldilocks depends on your income level.

  17. Costa commented on Nov 1

    when is the $41 bil dump today goint to take effect

  18. Ed commented on Nov 1

    So, where does inflation really stand? Has anyone crunched the numbers to get a “real” rate of inflation that includes all of the things an average consumer buys (real rate versus governement core rate)?

  19. bloggingzoom.com commented on Nov 1

    The Big Picture | Oil at $96, Gold at $800 (Fed belatedly worried about inflation)

    Barry Ritholtz over at thebigpicture.com is great. Here is a post from today explaining how even though rates were lowered yesterday the market is down today on inflation fears. In Barrys typical fashion he lays out several reasons and warning signs …

  20. MAS (Seattle) commented on Nov 1

    National Park Pass.

    2006: $50
    2007: $80

  21. KDruff commented on Nov 1

    Isn’t this called stagflation?

  22. SINGER commented on Nov 1

    blood test for ENZO LABS in NY on teachers insurance plan

    Last year – $9.55
    Now- $18.00


  23. tjofpa commented on Nov 1

    …and talk about tying things together;

    Just exactly how is Kraft supposed to pass the higher input costs of food on to the consumer, if incomes aren’t rising?

    They got a 2% increase in volume by “eating” 2.5 % in gross margarine.

  24. sanjosie commented on Nov 1

    My neighbor, 74 years old, was disconsolate over a $250 rent increase. Sending her this news item made her more accepting. Rent in our city, San Jose is up 12% yoy.

    October 18 – Bloomberg (Daniel Taub): “Apartment rents rose throughout the U.S. West in the third quarter as home sales slowed and companies boosted hiring…RealFacts said. The largest increases were in the Seattle and San Jose, California, areas. The average monthly rent in nine western U.S. states rose 5.5% from a year earlier to $1,142… In the San Jose, Sunnyvale and Santa Clara area, the average rent rose 12% from a year earlier to $1,449. In the Seattle, Tacoma and Bellevue area, it gained 11% to $955.”

  25. Eclectic commented on Nov 1

    I tell ya, BaRRingo, this inflation is killin’ me:


    …4.9000?…… What?… You gonna make me beg?

    C’mon, how bigga setta balls have you got?


    …I mean, it’s only a small risk. I’m sure Kudlow would enjoy the project… enjoy seein’ you in a cluck-cluck suit.

    What say?… four-ninety?…. Game?

    You’re making this difficult. I hate bidding against myself.

  26. ScrewBush commented on Nov 1

    Talk about a Chicken Little mentality. I guarantee you that the price of typewriters and typewriter ribbons will remain unchanged this year as well as next year. That’s zero inflation baby, zero!

  27. ken h commented on Nov 1

    Apples-$1.00 a piece.

    Milk- $6.00 a gallon

    Cheap paint brush- $8.00

    Gallon mediocre paint- $30.00

    On and On and On…..

    Just like I knew housing prices were a joke

    a couple years ago I know this economy is

    in for an enema,…Big Time. Everybody

    Spouts “Eron Like” BS for the last pump.

    Better have a chair when the music stops!

  28. Mike G commented on Nov 1

    Here in San Diego, it was ridiculous – oil would move up a $1/barrel, and gas would jump $.10/gallon.

    In Melbourne, Australia, the price of petrol/gasoline jumps 10c a litre (38c a gallon) every Thursday, and drops back every Tuesday. Nope, no manipulation, nothing to see here…

  29. Jon Barry commented on Nov 1

    We are all going to DIE! Oh well, I lived through a market tumble and an earthquake in the same week, so I figure it must be my time to go anyway.

  30. Royce commented on Nov 1

    When do my wages start getting inflated? Daddy needs to fill his home oil tank.

  31. Mo commented on Nov 1

    Operator Maintains Optimum Online and Phone Fees; Hikes TV Charges
    By Steve Donohue — Multichannel News, 10/26/2007 1:26:00 PM
    Cablevision said late Friday that it will raise the rates for its cable TV service in 2008 by 4.7%, but that it won’t hike the fees for Optimum Online and Optimum Voice.

    The cable TV operator, which faces stiff competition from Verizon’s FiOS TV and FiOS Internet in Long Island, Northern New Jersey and Westchester County, New York, said it won’t raise the rates for its Optimum Online high-speed Internet service and its Optimum Voice digital phone service.

    But Cablevision said it will hike the average rates of its pay TV programming packages in 2008 by 4.7%. The cable operator attributed the increases to rising programming costs, which it said have increased by 13% during the last year.

    Cablevision won’t change the standard rates for its high-speed Internet service and digital phone service. It charges $34.95 monthly for Optimum Phone and the standard monthly price for Optimum Online is $49.95. But spokesman Jim Maiella said most Optimum Online customers also subscribe to Cablevision’s iO digital cable package, which gives them a $5 monthly discount on the high-speed Internet service.

    Cablevision said average cable television price adjustment for the past three years has been below the rate of inflation.

    The 4.7% increase in 2008 for pay TV packages is an average of the price increase for its various programming tiers. Current charges include $15.52 monthly for broadcast basic, $46.95 for Family Cable and $87.95 for iO Gold.

  32. Mo commented on Nov 1

    Fed Intervenes in Financial System
    By JEANNINE AVERSA – 2 hours ago

    WASHINGTON (AP) — The Federal Reserve pumped $41 billion into the U.S. financial system Thursday, the largest cash infusion since September 2001, to help companies get through a credit crunch.

    The action came one day after Fed Chairman Ben Bernanke and all but one of his central bank colleagues voted to slice a key interest rate. It was the second time in six weeks that policymakers acted to protect the economy from the effects of the housing downturn and credit troubles.

    Wall Street took a nosedive with the Dow Jones industrials losing 362.14 points to close at 13,567.87.

    The Fed on Wednesday ordered its key rate, called the federal funds rate, to be lowered by one-quarter of a percentage point to 4.5 percent. That followed up on a half-percentage point cut in September. Those two rate reductions might be sufficient to help the economy make its way safely through trouble spots, Fed policymakers indicated.

    The funds rate affects many other interest rates charged to millions of individuals and businesses and is the Fed’s most potent tool for influencing economic activity.

    The Federal Reserve Bank of New York, which carries out the central bank’s open market operations, moved Thursday to inject $41 billion in temporary reserves into the financial system.

    A New York Fed spokesman said it was the largest single day of operations since $50.35 billion was pumped into the system on Sept. 19, 2001, following the terrorist attacks on New York and Washington. He declined further comment.

    Fed policymakers at their meeting on Wednesday noted that the “strains from financial markets have eased somewhat on balance.” In the past week, many Fed officials have described the state of financial markets as fragile.

    Bernanke and other Fed officials have said it will take time for the markets to fully recover from the credit crisis.

  33. ken commented on Nov 1

    Interest rates should be lower. Funds rate should be 4% 4.25% to be neutral.

    The way to head off inflation, this time, is by raising taxes to pay for the war spending.

    Inflation is being driven up by unhinged government borrowing and spending, not by lower consumer or business interest rates.

    Raising interest rates would crush the economy and do nothing to address the problem of excessive government borrowing.

    Higher taxes leads to lower deficits which lead to lower interest rates which lead to higher economic activity which leads to higher revenue…. etc. A virtuous cycle without any pressure on prices always results from sound fiscal policy.

  34. David commented on Nov 1

    I am very worry about inflation, things are getting out-of-hand, I see it every day. I don’t think the Fed cares, they cut rates and hurt the ones who are trying the hardest to save. It sorrow me to see what they are doing to the older WW2 generation.

    “When sorrows come, they come not single spies, But in battalions.”
    Hamlet- William Shakespeare

  35. Stuart commented on Nov 1

    and with all of those examples a PCE deflator of .8% in Q3. Go figure.

    P.S. gotta be careful about how much money you read about the Fed injecting. Always immediately ask how much is also coming out. In this case they removed $42.5B as well, so there was actually a net removal of $1.5B. Too often (99% of the time) the media misses this point.

  36. Rich commented on Nov 2

    I received my health benefits signup package for 2008 [from that great negotiator, JP Morgan Chase] and my monthly medical premium next year — for the same coverage as 2007– will be increasing more than 50%!!! And believe me, this is no cushy package. Just standard.

  37. Bodz commented on Nov 3

    The foreclosure train is steamrolling all those $$$ out there. But will it be enough?

    ken: Korean War cost 14% of GDP , Vietnam 9% of GDP. This war is less than %1. Do you think it will cause a problem?

  38. Bill Henner commented on Nov 3

    We are unfortunate enough to be witnessing the single biggest Fed monetary policy disaster in history. The inflation that will arise from this action could exceed the late 70’s (gold and oil are already there).

    Bill Henner

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