Thursday, December 15, 2005

Consumer Prices Fall Because Windfall Price Hikes In Oil Drops

By Elaine Meinel Supkis

Like naughty children, the economic pundits and professionals munch on the data and spit out bad results because they refuse to look closely at the numbers and closely at system dynamics. We are heading off a financial cliff and they claim there is no inflation just because oil companies stopped the windfall profits temporarily.

From the NYT:
A record plunge in the cost of gasoline pushed consumer prices down by the largest amount in 56 years in November while industrial production posted a solid gain.

The new government reports Thursday provided further evidence that the economy is shaking off the blows delivered by a string of devastating hurricanes. But analysts cautioned that the huge drop in consumer prices was overstating the improvement in inflation.

The Labor Department report showed the Consumer Price Index fell by 0.6 percent last month, the biggest decline since a 0.9 percent fall in July 1949. It reflected a record fall in gasoline prices, which have been retreating since they surged to above $3 per gallon right after Katrina hit.

Meanwhile, the Federal Reserve said output at the nation's factories, mines and utilities rose a solid 0.7 percent last month following a 1.3 percent rise in October. Industrial output had plunged by 1.6 percent in September, reflecting widespread shutdowns of oil refineries, chemical plants and other factories along the Gulf Coast.

The decline in consumer prices was better than the 0.4 percent drop that analysts had been expecting. Outside of the volatile food and energy categories, so-called core prices were up 0.2 percent, matching the October increase. Both months showed a pickup in core prices from benign readings of 0.1 percent in the previous five months.
So, once again, when we go through energy price hikes, this causes inflation and everyone recognizes this but after six months, the economists will all be back to their same old tired tricks. Pretending it doesn't fuel inflation and that manipulating currency values and interest rates will fix everything.

Of course, this doesn't work except in a very brutal form: people cut back on energy because they can't afford it and thanks to higher interest rates, can't afford to go into debt to maintain older rates of energy use! Ie: you travel less, are more uncomfortable or even freeze or over heat to death and everyone looks the other way.

Note that prices are going up, there is inflation. And the energy companies said they didn't have any windfalls yet the sudden rush of inflation is an indication they were charging windfall prices. They can't have it both ways.
In other economic news, the number of people who have lost jobs because of the string of devastating Gulf Coast hurricanes climbed to 602,200 last week. That gain reflected a rise of 1,500 jobless applications linked to Katrina and Rita and an additional 1,000 claims linked to Wilma, which hit Florida in October.
Gross numbers can conceal vital problems. As we all know, the red slips are going out this Christmas and they are mostly aimed at high paying, unionized jobs. The quality and type of pay and work matters a great deal. If we have a zillion more nannies and gardeners this isn't a sign of a healthy capitalist system if the number of factory workers and high skilled labor plummet.
Overall, energy prices were down a record 8 percent, reflecting not only the fall in gasoline but also declines of 6.1 percent for home heating oil and 0.5 percent for natural gas. Those drops still left prices higher than a year ago and homeowners will feel the pinch when they pay heating bills this winter.
You ain't kidding. Fuel bills are horrible. Everyone I know is very worried. For political reasons, Bush's Windfall Buddies in Texas decided to import like crazy and drive prices lower because they were terrified of Bush's plummeting popularity and talk of impeaching him and investigating them!

So bingo! Our trade deficit goes through the roof and we owe the world immense amounts of money which the Fed is printing with Weimarian madness. This is why analysis that looks only at one tree and ignores the forest fire is bang stupid.

This story has been delayed by 8 hours because my computer was malfunctioning and I went to the Apple store at Crossgates Mall in Albany which is hours away from my mountain and we fixed what was wrong, sort of. But what I noticed was how deserted the mall was. No hordes of merry shoppers. Every store had big "prices slashed!" signs up. The data for October and November don't show the real tragedy here for both months were wonderfully warm here in the Northeast, nay, the wind blew from the south, not the north, confusing migrating birds and many remarked that it looked like late spring, not mid November which is usually a dank and dark month up here.

Well, Old Man Winter came with a roar and temperatures plummeted this last two weeks and the last five days, record setting cold gripped the Northeast. It went well below zero here which is mid January weather.

The reverberations are already moving through the system, the world price of oil climbed again, imports of oil climbed again, all the bad stuff, up and up. And as per usual, when oil climbs, everyone cuts profits to keep inflation at bay and this causes them to lay off workers and the workers get ill paying jobs and go bankrupt and this same old stupid obvious cycle is rolling along, the worst effects will be next year when unemployed workers or poorly paid workers can no longer fund this merry-go-round sponsored by Asia.

Why do you think we, the main target country for all Asian exports, were excluded very pointedly from discussions at ASEAN about the future of trade in the Pacific? Eh? Gads, I wish I was there.

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