I am a bit harried today with my impending lengthy trip to my San Francisco office but wanted to point out an interesting phenomenon. Today the stock market fell because oil prices dropped (supposedly). This succinctly summarizes a sick paradox that we all face in the US – a recovering economy will mean massive price increases.
Effectively, the price of oil is telling investors that global demand is weak – if global demand for oil is weak (the most common fuel) then economic activity is weak – ergo no recovery yet. Therefore, we have 2 choices – expanding global economic activity and increasing prices on every commodity (and the cost on many things we buy) or contracting global economic activity and lower prices.
If you have a relatively recession-proof line of work, then contraction and lower prices could be good for you. If you have an economically sensitive line of work, then perhaps not so good but then if it were good, you would be paying much higher prices for food, energy, basic materials, utilities, and other items that the government says you don’t buy often (the way they calculate inflation, you’d think no one needed gas, electricity, food or oil).
Since the global economy will rebound someday (whether it takes us along for the ride is anyone’s guess – likely nominally it will), inflation should be a contingency that people should prepare for.