U.S. inflation could hit 6% in 2009
CIBC economist sees interest rates boosted
by Tom Stundza -- Purchasing, 7/30/2008 5:24:00 PM
U.S. consumer price inflation will hit 6% within the next six months, pushed ahead by reawakened energy costs, forecasts a new CIBC World Markets report.
The report notes that the American economy has not seen an inflation rate this high since 1990, and that only lasted four months. “You’ve got to go back to 1982, in the midst of the stagflation that followed the second OPEC oil shock, to see the last time American inflation was clocked at that kind of pace for any sustained period,” says Jeff Rubin, chief economist at Toronto-based CIBC World Markets.
Rubin notes that soaring energy prices are once again driving inflation concerns but that today high prices are emboldening the bargaining positions of many U.S. workers. "Soaring energy costs are rapidly turning global cost curves on their head. As shipping costs soar with triple digit oil prices, the once omnipotent threat of Chinese competition is growing fainter every day,” he says. “And the same energy costs that now protect American workers with soaring freight costs are at the same time eating away at their pay checks at the gas pumps.”
Rubin believes that supply pressures will drive crude costs back up, which will translate into higher consumer prices. He says that “an exploding thirst for oil and waning production in the Middle East” will continue to drop Arabian Gulf exports of one million barrels per day in the next four years. “If world oil markets are to see new supply over the next four and a half years, it won’t be coming from OPEC,” says Rubin. While exports fell in 2007, daily oil consumption in the Middle East climbed by the same percentage as the increase recorded by China.
Rubin says that despite OPEC’s recent claim that it has no responsibility for triple digit oil prices, his research found that the cartel’s practice of highly subsidized oil consumption will continue to reduce exports from the region. That in turn will drive both oil prices and U.S. inflation higher.
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