AFTER FALLING DURING THE FIRST HALF OF THE YEAR, CRUDE OIL AND GASOLINE PRICES ROSE DURING JULY -- THAT SHOULD BOOST INFLATION NUMBERS FOR THAT MONTH -- THE FED SHOULD LIKE THAT
ENERGY PRICES ROSE DURING JULY... A report on Tuesday covered economic conditions during the second quarter. One of the things it showed was continuing low inflation, which remains well below the Fed's target of 2%. One of the factors mentioned was falling energy prices. Naturally, the media reported that there are no signs of inflation anywhere. The charts beg to differ. It's not necessary to wait for another quarter, or even a month, to find out what happened during July. We already know that. The way we know is through the futures markets which trade every day. The daily prices are widely published and can be placed on charts. There's also a reason why they're called "futures". They trend based on estimates of future supply and demand factors. Inflation numbers published for the second quarter, or the month of June, tell us nothing about the future. Or even the present for that matter. They only tell us what happened in the past. Which brings us to today's two charts of energy prices. Chart 1 shows the price of light crude oil falling -14% during the first half of the year. Its second quarter loss was -9%. That's history. More recently, the chart shows the price of crude oil rising 9% during the month of July. Those numbers will show up shortly in CPI headline inflation figures. So will rising gasoline prices. Chart 2 shows the United States Gasoline Fund (UGA) also rising. After losing -22% during the first half of the year, the UGA gained 12% during July. The CRB Index gained nearly 5% during July after falling throughout the first half of the year. The falling dollar has had something to do with that. A jump in July inflation numbers could encourage the Fed to continue with any rate hike planned for later this year. That will be even more likely if commodity prices continue to firm over the rest of the summer. That assumes, of course, that the Fed actually notices the improvement in commodity prices. And can read a chart.
(click to view a live version of this chart)
Chart 1
