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August 16, 2005
High Oil Increases Inflation Rate
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The July level of 195.4 (1982-84=100) was 3.2 percent higher than in July 200The index for energy, which increased 16.6 percent in 2004, increased at a 19.4 percent SAAR [seasonally adjusted annual rate] in the first seven months of 2005. Petroleum-based energy costs increased at a 29.8 percent annual rate, while charges for energy services rose at an 8.0 percent annual rate.
I have not seen any information about where oil prices will start to slow the economy. However, elementary logic states higher oil prices have an increasing negative impact on the economy. In addition, corporations are beginning to state high oil prices are starting to negatively impact sales.
Wal-Mart Chief Executive Lee Scott noted the company's sales came in lower than expected and he blamed high gasoline prices. Scott noted that a cool and wet spring got the quarter off to a slow start but summer came in stronger than forecast.Scott said in a prerecorded call with investors Tuesday that inflation appears to be under control, except when considering fuel prices.
"I worry about the effect of higher oil prices," he said. Scott said higher prices at the pump could erase economic gains for a portion of Wal-Mart's customer base.
Oil has risen 58% since January 1. Oil extraction and refining are operating near 100% capacity. As China and India increase their respective GDP’s their demand will increase, further increasing prices. In short, there are no economic events on the horizon to slow oil demand. It appears oil’s inflationary impact has a fairly large chance of continuing.
Posted by Hale Stewart at August 16, 2005 11:08 AM | Permalink
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