White Lightning Axiom: Redux

Well, all those halcyon years of a nearly level inflation rate (anything below 5% is friggen spectacular) are coming to a close. China has been sucking up oil to bolster their reserves for some time now. Speculators, not noticing that this is ending are pushing oil futures higher and higher. This ever increasing price per barrel of crude is starting to show in the economy.

The wholesale price report showed that energy prices rose by 4.4 percent in July following a 2 percent increase in June.
Gasoline prices were up 10.9 percent, the biggest surge since a 12.8 percent rise last October. Analysts caution that motorists should be braced for another large increase in gasoline costs in August, reflecting the fact that gasoline prices have continued to rise in recent weeks as oil prices have surged above $66 per barrel.
The government reported Monday that the average nationwide price for gasoline rose to $2.55 per gallon in its latest survey, up 18 cents per gallon in just one week.

So why is inflation not just blasting through the roof like it did in the first two Oil Crisis Years? Well, because Oil is not the maker of the world, just the maker of empires.

The PPI report showed that food costs at the wholesale level fell for a fourth consecutive month, dropping by 0.3 percent in July as the costs of fresh vegetables, fruits and beef all declined.

Over the past 12 months, wholesale prices have risen by 4.6 percent while the core inflation rate, excluding food and energy, has risen by a more modest 2.8 percent.

Computers were one area where prices continued to decline, falling 2.1 percent in July.

Oddly enough, even though food is grown, shipped and consumed through the use of oil, it seems that we are getting more efficient at shipping or producing it. That, and we consume much more food than oil to make the balance sheets work out. This applies to computers too. The are made with oil (plastic, energy to run the machines that make the machines), delivered with oil (trucks, trains, ships and planes) and run on oil (powerplants). There will be a breaking point though where the cost of oil will finally start flushing out even these saving graces. This is when the 401K investments and savings accounts will start to decline in value. Perhaps, now would be a good time to nip this in the bud and 1) Diversify energy production, 2) Optimize energy consumption, 3) Shoot all the damned speculators.