In oil markets guru Stephen Schork’s latest report, he takes issue with the Federal Reserve’s recent argument that inflation is going to remain subdued. It is true that core inflation — all prices excluding food and energy — has not spiked.
But the “wealth effect” that Chairman Ben Bernanke is hoping to create by causing the value of assets like stocks to rise will be outweighed by everyone panicking about their grocery and electricity bills going up.
By pouring more and more dollars (albeit, electronically) into the economy, investors will not only be encouraged to own paper assets like stocks and bonds, but they will also want to own dollar-denominated hard assets; be that gold, cocoa, coffee or, yes, oil.
[But] the cost is far outpacing wealth for the average consumer.
…in 2006 (Bernanke’s first year at the helm of the Fed) the average weekly earnings (pre-tax) of a worker in the U.S. could purchase 332 loafs of bread, 265 cartons of eggs, 109 gallons of milk, 141 gallons of gasoline and 3,170 KWhs of electricity.
Since then, the cost of these staples has soared, while incomes have barely moved and the value of our homes has declined by one-fifth.
Six years later and average weekly incomes can only buy 250 loafs of bread (-25%), 187 cartons of eggs (-30%), 101 gallons of milk (-7%), 94 gallons of gasoline (-34%) and 2,644 KWhs of electricity (-17%).
To add insult to injury, the cost of electricity for households has grown by 23%, while the cost of natural gas (which now accounts for more than half the generation capacity in the U.S.) has fallen by 55% for producers!
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