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I think none of us would wan to see oil at 120.. not to say 200.. being oil as the lifeline of the economy. If oil surge up so much, it will definitely squeeze the profit margin of most mfg , shipping, transportation, utilities coys. some coys due to big mkt share or monopoly can pass on the increase in cost to consumers, it will translate to broad based inflation.. which in turn hurt consumer spending.. so its a spiraling down effect which will ultimately result to -ve growth and high inflation (stagflation)
yep US$120 was what many economists predicted for this year...however, you might be interested to know that Jim Rogers say he will not be surprise to see it hit US$200...(tt's unimaginable)...as for our SM Lee Kuan Yew...said he does not expect the oil to climb further up above US$110
many different kinda views
heard from news speculate that crud oil price may reach US$ 120 this year and if so what are the considuences?
thanks for the article posted...yes indeed the Fed rate cuts really is not a good sign...it aids temporary...but longer run..really a pain...in fact when the Fed open up for more borrowing...the banks are NOT borrowing...(reported on CNN Money either last night or the day before)
if central banker dun control inflation now.. china will end up with -ve real GDP growth.. inflation offset all the GDP..
China Inflation Surges 8.7% on Blizzards, Food
By Kevin Hamlin
March 11 (Bloomberg) -- China's inflation accelerated to the fastest pace in 11 years in February as food and energy prices jumped, increasing the likelihood the central bank will raise interest rates.
Consumer prices climbed 8.7 percent from a year earlier after gaining 7.1 percent in January, the statistics bureau said today. That was faster than the 7.9 percent median forecast of 22 economists surveyed by Bloomberg News.
Dousing inflation is the government's top priority, Premier Wen Jiabao told China's legislature last week after the worst blizzards in half a century exacerbated price gains. Six interest-rate increases last year and the highest reserve requirements ever for banks have failed to tame inflation mainly driven by soaring food costs.
``They must raise interest rates big time -- at least two to three percentage points this year,'' said Andy Xie, an independent economist based in Shanghai.
The key one-year lending rate is 7.47 percent. The deposit rate is 4.14 percent, less than half the pace of inflation.
Inflation has surged since March last year on costs of staple foods such as pork and cooking oil. China's worst blizzards in half a century pushed up food and fuel prices because transport bottlenecks disrupted supplies.
The yuan traded at 7.1070 versus the U.S. dollar at 10:08 a.m. from 7.1099 before the data was released.
Raising Rates
China's leaders may raise rates this week to signal their determination to fight inflation as legislators gather at the annual meeting of the National People's Congress, said Ha Jiming, chief economist at China International Capital Corp. in Beijing. The March inflation rate is likely to be slower, Ha said.
``The bottom line is not controlling inflation per se but controlling inflation perceptions,'' said Xie.
Raising rates when the U.S. Federal Reserve has cut them risks attracting more overseas money into a financial system already flooded with cash from export sales. The government needs to tighten controls on inflows of so-called ``hot money'' that threaten to overheat the economy, Li Deshui, the former head of China's National Bureau of Statistics, said March 8.
Non-food inflation was 1.6 percent, up from 1.5 percent in January. Excluding food and energy, prices rose 1 percent.
Economic `Weakness'
China is wrestling with inflation just as weakening global demand threatens the export growth that's a key driver of the world's fourth-biggest economy. Overseas shipments grew at the slowest pace in almost six years in February because of the blizzards, weaker U.S. demand and the timing of the Lunar New Year holiday.
``Everybody is very worried about inflation at the moment, talking about tightening and so on,'' said Huang Yiping, chief Asia economist of Citigroup Inc. in Hong Kong. ``Very soon we might have to worry a lot more about weaknesses in China's economy because of the U.S. slowdown.''
China's producer-price inflation accelerated to the fastest pace in more than three years in February, adding pressure for consumer prices to keep rising.
``China's first challenge is how to respond to the global slowdown and its second is what to do on inflation,'' said Louis Kuijs, the World Bank's Beijing-based senior China economist. ``China's inflation is now running at rates that are uncomfortable from the perspective of the Chinese public and policy makers. It is right for China to have a relatively tight monetary policy.''
To contact the reporter on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net Last Updated: March 10, 2008 22:21 EDT
on the backdrop of slowing growth and soaring in prices.. US economy is escalating from recession from stagflation.. while the world also suffer from soaring price, eroding the real value of the GDP growth and purchasing power of the currency.. we are also on the way from inflation to hyperinflation..
Traders to benefit from their trding hoping for 1% rate cut in coming FOMC meeting, ignoring the fact that further rate cut wun solve the current financial crisis but yet sowing the seed to higher inflation.. and bonds and currency mkts has factored the fact that fed is losing control of inflation...
expect the bear to arrive after FOMC meeting...
TIPS' Yields Show Fed Has Lost Control of Inflation
By Sandra Hernandez and Deborah Finestone
March 10 (Bloomberg) -- Bond investors have never been so sure that the Federal Reserve will lose control of inflation. They're so convinced that they're giving up yields just to buy debt securities that protect against rising consumer prices.
The yield on the five-year Treasury Inflation-Protected Security due in 2012 has been negative since Feb. 29, ending last week at minus 0.16 percent. The notes, which were first sold in 1997, have never before traded below zero. Even so, firms from Deutsche Asset Management to Vanguard Group Inc., the second-biggest U.S. mutual fund company, say TIPS are a bargain.
For the first time in a generation, money managers must come to grips with a central bank that's more intent on spurring the economy than restraining price increases. With oil above $100 a barrel, gold approaching $1,000 an ounce and the dollar at a record low against the euro, TIPS show investors aren't convinced Fed Chairman Ben S. Bernanke will be able to tame inflation once policy makers stop cutting interest rates.
``The way TIPS are trading now, investors believe headline inflation will stay lofty and are willing to give up the real yield for that,'' said Brian Brennan, a money manager who helps oversee $11 billion in fixed-income assets at T. Rowe Price Group Inc. based in Baltimore. Prices for the securities indicate ``a real concern of a recession and high headline inflation,'' he said.
Because TIPS pay a principal amount that rises in tandem with the consumer price index, buyers accept lower yields in a bet the inflation adjustment will make up the difference.
Volcker Fed
Investors typically determine what they are willing to receive in interest by deducting the rate of inflation expected over the life of the securities from the rate on a comparable Treasury. Investors can still earn money from TIPS with sub-zero rates because the principal rises with the CPI.
Five-year TIPS yielded 2.35 percentage points less than similar-maturity Treasuries as of 2:45 p.m. in Tokyo. The so- called breakeven rate has risen from a four-and-a-half-month low of 1.89 percent on Jan. 23, the day after policy makers cut their target lending rate by three-quarters of a point to 3.50 percent in an emergency move.
The last time investors were so worried about faster inflation amid slowing growth, Paul A. Volcker presided over a Fed that would raise rates as high as 20 percent to end the stagflation crisis of the 1970s, according to Seth Plunkett, a bond fund manager at American Century Investment Management in Mountain View, California. The firm manages $20 billion.
Fed Forecast
Inflation ``is going to be higher than the Fed's targeted area,'' said Plunkett, whose fund owns a greater percentage of TIPS than contained in the index he uses to measure performance.
In forecasts released last month, the Fed said it expects inflation to accelerate 2.1 percent to 2.4 percent this year, and 1.7 percent to 2 percent in 2009.
TIPS have returned 6.2 percent this year, compared with 3.7 percent from regular Treasuries, according to indexes compiled by Merrill Lynch & Co. Mutual funds that specialize in inflation-linked debt attracted a net $2.87 billion in January, boosting their assets to $47.6 billion, according the latest data available from Financial Research Corp. in Boston. In all of 2007, the funds added a net $3.54 billion.
``TIPS are a really good buy,'' said Bill Chepolis, a money manager who helps oversee $9 billion at Deutsche Asset Management in New York. He bought five-year TIPS in the last six months. ``They're cheap with the Fed continuing to emphasize growth over inflation and inflation continuing to come in higher.''
Too Expensive
Investors seeking a haven from credit-market losses have pushed yields on all Treasuries lower, including TIPS. Five-year nominal note yields have dropped 1.03 percentage points this year to 2.41 percent.
``It's crazy,'' said Richard Schlanger, a portfolio manager at Boston-based Pioneer Asset Management, which oversees $44 billion in fixed income. ``You're paying the government to buy five-year TIPS. People are hiding in Treasuries for liquidity's sake because of a lack of liquidity in other markets. Eventually this will pass.''
Record-low TIPS yields also reflect bets on surging commodities. Crude oil futures rose to $106.54 last week and are up 70 percent this year.
Growth in countries such as China and India mean that rising prices for goods including wheat, gold, and oil ``may be a permanent thing,'' said Paul Samuelson, the second recipient of the Nobel Prize in economics who helped popularize the term ``stagflation.'' ``This time it's primarily not made-in-America inflation.''
Resumed Sales
The Treasury stopped selling five-year TIPS between 1998 and 2003, and resumed auctions in October 2004. In addition to the current five-year security, seven other inflation-indexed notes with up to four years to maturity currently yield less than zero.
Should five-year TIPS continue to have negative yields when the Treasury holds its next sale April 22, federal rules state investors would receive a coupon of zero percent, said Stephen Meyerhardt, a Bureau of Public Debt spokesman in Washington.
``TIPS have performed really well for the right reasons and they will continue to perform well for the right reason,'' said Kenneth Volpert, a fund manager overseeing $14.7 billion in inflation-linked debt at Vanguard in Valley Forge, Pennsylvania.
To contact the reporters on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net; Deborah Finestone in New York at dfinestone@bloomberg.net.
Last Updated: March 10, 2008 01:49 EDT