Energy Prices Surge In May
On Thursday, the Department of Labor released it’s report for the Consumer Price Index(CPI) which showed a large spike in commodity prices in May. After energy prices remained stable in April, they rose sharply last month causing a 0.6% rise in the CPI, the largest since November.
The 4.4% rise in energy prices is becoming a major concern for many officials at the Fed, while Chairman Bernanke maintains that he believes inflation growth will slow due to the softening economy. While core inflation remain relatively low at 0.2%, which was what economists were predicting, it is doubtful energy demand will decrease in the near future with the summer driving season now upon us.
Many analysts are predicting $150 a barrel price for oil before the summer is over. The G-8 finance ministers are now calling rising energy prices the biggest threat to global economic growth, surpassing credit concerns which have plagued the world for the past year.
Many consumers are already worried about the high price of gas but it still has a ways to go before it matches the relative increase in the cost of oil, which has more than doubled in the past year. It is becoming apparent that rising commodity prices are beginning to have a significant impact on the standard of living for many Americans.
The Fed would prefer to keep rates stable for as long as possible with signs that the housing market continues to worsen, which is causing growing losses in the financial sector. If other central banks raise rates in the mean time to combat inflation, we could see energy prices climb even higher as the dollar takes another pounding.
Relief in energy prices is not expected to arrive until September when most investors are predicting the Fed will most likely raise rates. With unemployment surging last month as well it is becoming increasingly difficult for the Fed to keep the economy out of a recession.
