Click on the headline (link) for the full text.
Many more articles are available through the Energy Bulletin homepage
Bank’s Bean says cheap goods ‘banquet’ may be over
Julia Kollewe, The Independent
The Bank of England’s chief economist Charlie Bean has warned that record oil prices could kill off the era of cheap goods, making it harder for policymakers to keep a lid on inflation.
Cheap imports from the Far East and eastern Europe have kept the prices of goods down. In spurring greater competition, globalisation has provided a “favourable tailwind to central banks’ attempts to hold inflation down,” Mr Bean said at the annual gathering of central bankers in Jackson Hole, Wyoming, sponsored by the Kansas City Federal Reserve Bank. Yet he cautioned: “Winds can be changeable and the process may go into reverse at some point. To an extent this may already be happening …. There is no never-ending banquet under the sun.”
He pointed to the near-tripling of oil prices over the last couple of years, and the rise in commodity prices more generally, as global demand has rocketed, especially from China’s rapidly-growing economy. He called the rise in oil prices the “flip-side” of globalisation. This meant policy makers should not look just to inflation measures that strip out energy costs because they are regarded as less volatile. The focus on measures of core inflation was “highly suspect”, as they strip out soaring energy prices while retaining falling goods prices.
Mr Bean admitted that the impact of higher oil prices had been relatively benign because wages and prices have not reacted in the way they did during the oil crisis of the 1970s. That is partly down to policy makers’ efforts to prevent an inflationary spiral, but also because of greater competition which means businesses often feel unable to pass on energy price increases to their customers and instead seek to cut other costs.
Another factor is that “workers have less scope to negotiate higher earnings when faced with potential offshoring and actual or threatened use of migrant labour”, he said.
(28 Aug 2006)
Detroit Sees Cheap Gas as History
Micheline Maynard, NY Times
TOLEDO, Ohio – The Chrysler Group, which depends more heavily on sales of pickup trucks and sport utility vehicles than any other Detroit automaker, said Monday that it expected gasoline prices to remain at $3 to $4 a gallon for the rest of this decade.
The comments by Thomas W. LaSorda, Chrysler’s chief executive, are the first time a Detroit automaker has issued a specific forecast on gas prices since they began climbing to $3 a gallon and higher.
Ford’s chief sales analyst agreed Monday that high gas prices were not a temporary phenomenon, although he did not cite a price range. The analyst, George Pipas, said the auto company expected gas prices to remain high, volatile and unpredictable.
Together, the comments signal a recognition that the two automakers may have to fundamentally change their product mix to put more emphasis on fuel-efficient vehicles – a move General Motors says it already is making.
Mr. LaSorda, who had traveled here for the start of production of a four-door version of the Jeep Wrangler, was asked whether gasoline prices had peaked. “I would hope so,’’ he replied, “but we’re planning internally as if it is $3 to $4 a gallon.”
(29 Aug 2006)
$100/barrel oil would cause U.S. recession-survey
Joanne Morrison, Reuters
WASHINGTON – U.S. oil prices would have to hit $100 a barrel to drive the world’s largest economy into recession, according to a semiannual survey of economists released on Monday.
A panel of 195 forecasters surveyed by the National Association for Business Economics said that such prices could lead to a slowdown but predicted that oil would not ultimately move that high.
(28 Aug 2006)
Global Trends May Hinder Effort to Curb U.S. Inflation
Edmund L. Andrews, The New York Times
As the Federal Reserve fiercely debates how to reduce inflation within the United States, economists are warning that trends outside the country may soon make the Fed’s job much harder.
In recent years, global integration has made things easier for the Fed in two ways. An explosion in low-cost exports from China and other countries helped keep prices of many products low even as Americans spent heavily and loaded up on debt.
At the same time, China and other relatively poor nations reversed the normal patterns of global investment by becoming net lenders to the United States and Europe. Analysts estimate that this “uphill’’ flow of money from poor nations to rich ones may have reduced long-term interest rates in the United States by 1.5 percentage points in recent years — a big difference when home mortgage rates are about 6 percent.
But as Fed officials held their annual retreat this weekend here in the Grand Tetons, a growing number of economists warned that those benign international trends could abate or even reverse.
For one thing, they said, China’s explosive rise as a low-cost manufacturer does not mean that prices will fall year after year. Indeed, China’s voracious appetite for oil and raw materials has aggravated inflation by driving up global prices for oil and many commodities.
Beyond that, new research presented this weekend suggested that the United States could not count on a continuation of cheap money from poor countries. Those flows could stop as soon as countries find ways to spend their excess savings at home.
(27 Aug 2006)
Roger on the EnergyResources list writes:
The guys in charge of the US economy are worried because they are losing control; facing both inflation and an unpayable mountain of debt that is being destabilized by this inflation. The US is simultaneously addicted to cheap foreign oil and also addicted to a continuation of unsecured foreign loans (largely to pay for it) that keeps increasing at $2 billion a day, not to mention the burden of a $2 billion a week war in Iraq.
Roger highlighted a section deeper in the article; the full article is worth checking out. -AF
