The latest Consumer Price Index (CPI) report was recently released and confirmed what economists anticipated: consumer inflation has risen 7.9% over the past year, the largest spike since 1982— none of which is a surprise for anyone who has visited a gas station lately.1
With the price of gasoline trending higher, it may be tempting to attribute these prices to the global economic disruptions caused by Russia's aggression toward Ukraine. President Biden and the administration would like you to believe that. However, the CPI reflected the 12-months ended in February and didn't include most of the oil and gas price increases that followed Russia's invasion of Ukraine on Feb. 24th.2
There is much blame to go around, especially the present Biden bias in favor of Green Energy and his repulsion for oil and gas exploration and pipeline infrastructure connections. A major culprit is actually the American investor who rejected investment in oil and gas over the last 3-5 years. Considering the time it takes to ramp up delivery -- through pipelines from Canada and the Permian Basin to our refineries -- and to drill under the current difficult restrictions to avoid potential pollution, count on at least six months to bring significant domestic volume into the US market. Current prices at $110-plus per barrel are incenting further supply. However, domestic producers are wary of committing to further expensive drilling without the needed infrastucture and the liklihood that they may again flood the market, dropping prices below costs.
Getting more oil out of Saudi Arabia, Venezuela, Iran -- not our biggest fans -- does not seem, to me, like a smart response. Unfortunately, energy policy is more politically rationalized than economically justifiable or reasonable.
There was a slight silver lining within the CPI, however. The food away from home index, tracking restaurant purchases, rose 0.4 percent in February after increasing 0.7 percent in January. This could indicate strengthening consumer confidence despite inflation, as consumers continue to eat out.3
What does this all mean for consumers? It's hard to say, but some, like me, predict further inflationary pressure, while others want to wait and see what the Fed says at its meeting this week.
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1. ABC7.com, March 10, 2022; 2. BLS.gov, March 10, 2022; 3. Ers.usda.gov, March 10, 2022
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