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This chart shows the year over year change in the inflation adjusted price of unleaded regular gasoline.
The dark bands represent business cycle contractions. The data can be found at the National Bureau of Economic Research (Permission to copy is granted, provided credit is given.).
The real (2000 chained dollars) price of unleaded regular gasoline can be found in the Monthly Energy Review - Table 9.4.
As seen in that report, the price of gasoline was lower in July, 2007 than it was in July, 2006. That might not be reason for celebration if the previous two economic contractions are any indicator.
This chart is yet another reason to be concerned about a possible recession (and is therefore yet another possible nail for the subprime borrower's coffin, and yet another possible nail for the home sellers, and yet another possible nail for those who feel copper only goes up, and yet another possible nail for those who have embraced the China story at any price, and yet another possible nail for those who feel that US stocks only go up, and yet another...).
It's almost enough to make me want to change my name to Deflationary Mark, but that's just not something I'd bet on long-term. Call me silly.
I think this chart also might draw into question the idea of peak oil being the driving factor (at least in the short-term). It might not be a coincidence that all assets have been moving higher. It might have something to do with INSANELY low interest rates held TOO low for TOO long. Wow, didn't think I still had that rant left in me. I thought I worked that off a long time ago. Apparently I was mistaken, lol.
This is not investment advice.
4 comments:
Mark, you have a nice site up and running. According to ECRI's Banerji, the Katonah effect shows an oil spike preceding every recession. Looks like the spike happened quite a while ago.
BR
BR,
Thanks for your kind words!
I sure got that chart in under the wire, lol.
This is the thinking that got me to make it. I've been watching oil but perhaps the "average guy" is simply watching gasoline.
The psychological shock of seeing price increases in gasoline is fairly intense (and for the past few years it has been relentless and intense).
Take my girlfriend. She went from driving a car to work to riding in a van pool (about a year ago).
The truth of the matter is that she's probably even a bit better off financially from it, since wear and tear on the car is a huge expense too. Somebody isn't though, the van pool is subsidized (by her employer). D'oh!
err... Katona effect apparently. More on it here
http://www.purchasing.com/article/CA84466.html
Funny how they thought no recession will occur in mid-2001.
(cue economist jokes).
Anyway, I think it's not the energy cost per se that is the risk, but the CPI spike due over the next few months which creates the inflation volatility.
Nowadays, I see big advertisements for low milk prices -- banner in Ralph's inside and banner at the window for CVS.
Anecdotally, my wife has now cut back on expenses sharply, particularly after seeing how the AC ran up the electricity bill the last two months.
But ECRI is not forecasting a recession yet and so you have to respect that. Particularly the AAA-BAA spread has not widened at all. It looks like we are just looking at slow growth ahead.
I think the Fed is not in a position to lower rates and they don't seem to be indicating so either -- what do you think they are likely to do?
The next leg down may be when the market realizes no rate reduction.
BR
...what do you think they are likely to do?
I'm tempted to say they are going to _____ their pants, lol. Fortunately, I'm not into potty humor (oops!).
I've been harping on that inflation spike that's coming for a long time now and few seem to even see it coming.
http://www.econbrowser.com/archives/2007/06/musings_on_infl.html#more
You know you should be suspect when the article starts off with "Not being an inflation-follower, I was a little mystified by all this."
I don't follow baseball. Therefore current baseball trivia mystifies me. I therefore don't comment on baseball. Seems like common sense to me, but what do I know? ;)
I posted my comments on the thread and you can see my take on it back then, for what its worth. My thoughts haven't changed (much).
As for what the Fed does next, they are SO boxed. Since everyone has been talking up the tame inflation story based on LAST year's commodity selloff, I can only imagine even more inflation panic may set in soon, especially if the Fed cuts rates.
Of course, from here on out that's all it might be: an inflation scare. The deflation winds are picking up.
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