Inflation surges in July – Aug. 14, 2008
by Tom on August 14, 2008
in Market Musings
The biggest culprit in driving up inflation was the cost of energy, which increased by 4% on a monthly basis and 29.3% annually.
Inflation surges in July – Aug. 14, 2008.
Yep, it wasn’t a good report. But I’m going to put out my own theory on inflation again:
1. If the inflation is in food and energy (which it is), then it’s a non-negotiable (you can’t decide not to buy gas).
2. The extra money you pay for gas, heat, etc. is going to take money away from what you can spend on things like movies, clothes, back to school supplies etc.
3. That’s going to lower demand for other things.
4. Which will reduce the ability of stores etc. to pass on cost increases, thereby lowering the risk of inflation in other areas.
5. Which will, in my opinion, reduce the risk of inflation in the long term.
Therefore, the risk of the Fed increasing rates has dropped because of the effect of the energy cost increases.
Does that make sense?
Tom Vanderwell
