Thursday, March 03, 2011

Dallas Fed – Inflation up for February, as Gasoline Careens Towards $5.00 per Gallon, Shades of the 1970’s – It’s Carter Time!

The latest Dallas Fed Reports notes that food prices rose substantially the past year, with an 8.2% annualized rate among all categories. All categories include processed and preprocessed foods:

“It’s notable, then, that while prices for more-processed items increased by a smaller amount than prices for less-processed items, gains for both were robust—annualized 14 percent for less-processed items and 6 percent for more-processed items. Data at the more-processed end will bear watching in the coming months for signs of further impact from price increases at cruder stages of processing.”

What this boils down to in plain speak, is that consumers are finding higher prices at the retail grocery level, and may see steeper increases over the coming months due to the rising costs of fuel.

As the Middle East Implodes, and the ban on offshore drilling continues, the price per gallon of gasoline, climbing above $4.00 in some states, will, most likely go to $5.00 per gallon. That said, even at $4.00 per gallon, it affects not only those who commute to work and school, cutting back expendable income, but affects, again, the price of food. Delivery is factored into the price of groceries reaching the market. The end results are that families will be making some tough choices in the coming months, like so many were forced to in the 1970’s.

While the President weighs options, among them anything but opening up the U.S. offshore oil fields at a fast clip, should the price of a gas of gallon reach $5.00, he may opt to cut the Federal Gas Tax and/or Open Strategic Oil Reserves (which would be a national security issue).

During the 1970’s, when fuel prices rose dramatically, demand and supply fell dramatically, one might park in line for hours only to reach a pump and find the gasoline “sold out” – cars were routinely abandoned in favor of public transport, and car pooling (if one could find the fuel) became the norm. The crisis then, the return of the Ayatollah with the help of one Jimmy Carter to Iran, and the solution: new leadership.

The cycle that the United States is experiencing now, has happened before, and recently at that (The Carter Administration late 1970’s), the fact of the matter is that it will correct, but the process is painful. Those most at risk are individuals living on fixed incomes, such as the nation’s retirees. Things to do: Keep your gas tank full at all times, find, in advance, bus schedules or public transportation modes to get one back and forth to work, and then hunker down until the economy rights itself.

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