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Schork Oil Outlook: US Consumers Have a Problem

The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.
- FOMC Statement
March 15, 2011

While the FOMC endeavors to pay close attention to the evolution of inflation, yesterday the Bureau of Labor Statistics (BLS) reported a much larger than expected uptick in inflation at the wholesale level in February, particularly for food and energy goods.

The cost for the latter rose by 3.3% from January on a seasonally adjusted basis. The energy complex was led higher by a 14.6% jump in price of distillate fuels and a 3.7% increase in gasoline.

On the retail level gasoline prices surged 9% in February and another 5½% through the first half of this month. Diesel prices jumped by 8% in February and 5% through the first two reports of March.

As far as the foodstuffs go, coffee, cocoa, corn and beef were all higher in the futures markets last month. Therefore, in light of yesterday’s PPI figures, odds have shortened in the last 24 hours that this morning’s CPI figures are going to come in stronger than the 0.4% market consensus. To this effect, we would not be surprised to see February inflation on the consumer level closer to 0.9% rather than 0.4%.

For the most part consumers have been spared from the extant rally in commodities. Be that as it may, at some point producers are going to have to pass along these higher costs.

As written in today’s issue of The Schork Report, that time is nigh… and that does not bode well for the budding economic recovery.

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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.