An Energy Department report showing an unexpectedly large increase in crude oil supplies last week also helped calm investors. If rising inventories help oil prices pull back from record levels, inflation pressures should ease – which would give the Federal Reserve greater opportunity to lower interest rates and boost lending efforts to spur the economy. Crude oil fell back below $108 a barrel on the New York Mercantile Exchange, after reaching a trading record of almost $110 a barrel the day before.
Read the story here. There is no such thing as “cost-push” inflation, or a “wage-price” spiral. Higher oil prices likely are a reflection of government inflating activities. Part of the increase in oil prices reflects an increase in the overall level of prices. Part of it reflects moves by speculators to protect themselves from the perils of inflation. That supply abundance may have pushed oil prices down says nothing about whether inflationary pressures have eased. And to think that the Fed will turn on the printing press because of this is simply astonishing. Inflation may not be showing up in the monetary aggregates, but someone out there please tell me whether they’d invest a newly found $20,000 in a savings account today? Does the news on falling oil prices make you more likely to do so?
The deterioration in Bernanke’s inflation-fighting credentials since this time last year is absolutely remarkable. I had very high hopes for this Chairman and his ideas about inflation targeting and improving Fed transparency in general. While I admit that I am somewhat sympathetic to Bernanke’s goal of preventing credit markets from fully seizing up, I think he has painted himself, whether intentionally or not, as a ‘first-responder’ to firesales on the Street. Whither the spirit of Volcker??
See also: Gold