Consumer prices spike on oil, food
Posted by click at 7:15 PM
www.chicagobusiness.com
(Reuters) — U.S. consumer prices posted their biggest gain in more than two years in February as energy surged on the march to war with Iraq and food costs jumped, the government said Friday.
The Consumer Price Index, the main U.S. inflation gauge, advanced 0.6 percent last month, the Labor Department said, outstripping the 0.5 percent increase expected by Wall Street economists.
Energy prices shot up 5.9 percent, the largest increase since June 2000 while food costs staged their biggest rise since June 1996, gaining 0.7 percent.
When food and energy were stripped out, prices were mostly well-contained with the 12-month gain in so-called core costs just 1.7 percent, the smallest in nearly 37 years. On the month, the core CPI edged up just 0.1 percent, below the 0.2 percent economists had expected.
However, overall consumer prices have risen a strong 3.0 percent over the last 12 months, mostly on higher energy costs.
Bond markets showed little reaction to the data, focusing instead on the progress of the U.S. conflict with Iraq.
Oil prices rose sharply through February after a now-ended workers' strike in Venezuela cut into supplies and as the United States prepared for war with Iraq. But in recent days, as war came to appear inevitable and as bombs began to drop, prices have reversed course, shedding a quarter of their value from recent highs. Crude oil futures were near a three-month low in European trade on Friday.
The Labor Department report showed a 9.9 percent increase in the price of gasoline, the largest monthly gain since June 2000, while the cost of fuel oil spiked up 15.8 percent, the sharpest increase since February of 2000.
As for food, prices for beef and veal shot up 3.3 percent, the steepest increase since January 1984. Pork prices rose 1.1 percent, poultry gained 1.2 percent and vegetable prices rose 1.5 percent. Labor said there were no special factors to account for the jump in food costs.
Federal Reserve policymakers believe inflation may be set to drift lower this year given a high degree of slack in the economy, minutes from a January rate-setting meeting released on Thursday showed. However, officials spoke about a number of ''crosscurrents'' — including high oil prices — that made the inflation picture hard to judge.
The recent rise in oil and other commodity prices have eased fears that the United States could face deflation -- an outright drop in the general price level.
``Inflation is in existence. We are are nowhere near close to a deflationary environment,'' said David Durrant, chief currency strategist at Bank Julius Baer in New York.
Fed officials held interest rates steady at 1961 lows this week and said they could not ``usefully'' characterize whether economic risks were weighted toward inflation or weakness or balanced between them given the high degree to which war clouds had shrouded the outlook.
Nigeria: Should the price of petrol be increased?
www.dailytimesofnigeria.com
A leading arm of the Organised Private Sector (OPS), the Lagos Chamber of Commerce and Industry has put its weight behind the call for a hike in the pump price of petroleum products. It reasoned that, the current price of crude oil in the international market, calls for a little increase in their pump price. It further explained that a greater percentage of fuel being used in the country was imported and the difference between the local price and the international market cost the Federal Government a fortune. The chamber also revealed that oil smuggling has turned some Nigerians and foreign collaborators into over night millionaires. It would also be recalled that the leading petroleum products marketing firms recently canvassed for a hike in the pump price of petrol from the current rate of N26 to N37 per litre. The major oil marketers had given the huge price hike as the only condition for their return to the business of importing petroleum products into the country. The Nigerian National Petroleum Corporation (NNPC), has been the sole importer of fuel into the country since crude oil prices escalated beyond the $30 range per barrel
The clamour for an increase in the fuel pump price in Nigeria is not new. The reason always given for successive increases in the price of fuel is the same, but the succour they claim the increment will bring in terms of availability of fuel, is never met. The latest call is ill-timed and ill-advised as the general elections are just around the corner. Any increase now can cause eruptions within the system and this will not augur well for this crucial civilian-to-civilian transition in the country. The workers can embark on a nationwide strike. This will heat up the polity and have deleterious effect on our nascent democratic experiment
Similarly, why is it that, it is the citizenry that always bear the brunt of government’s inaction? They cannot be blamed for smuggling, and since there are agencies specifically responsible for curtailing this like the police, customs, immigration, armed forces as well as other security agents. Government can effectively and decisively deal with smuggling. Also, Nigerians are already experiencing economic hardship and any increase now will further put pressure on them. Again, it will lead to a corresponding increase in the prices of goods and services, and lead to inflation. This is not in the best interest of the country
It is for this reason that, we commend President Olusegun Obasanjo for explaining the reason for the current fuel shortage of fuel in country, which according to him, has to do with the on-going crises in Iraq and Venezuela as well as the stockpiling of fuel by the United States. He further explained that, some countries which signed agreements with Nigeria on fuel supply reneged because the price at which the agreements were signed was not as high as it is now. More importantly, is the fact that, the President apologised to Nigerians over the problem and pledged to restore normalcy in the supply and distribution of the commodity nationwide within the next one week
We call on the major oil marketers to be patrotic and think about the national interest of the country rather than their immediate short term gains. Hence, they should cooperate with government to end the fuel scarcity instead of the call for increase in fuel price. It is also imperative for the NNPC to attend to the issue of Turn Around Maintenance (TAM) of the refineries so that, we can locally refine petroleum products in Nigeria, for adequate internal consumption and export for the international market. That is why it is important that, government take a second look at the NNPC, restucture it, and make it more productive and accountable. The option of privatisation of refineries should also be seriously considered. Government should take bold steps to block the numerous leakages in the oil sector, while concerted efforts should be made to genuinely and promptly develop the non-oil products in the country
It goes without saying that, there are problems in the oil sector and government has taken a lot of things for granted over the years in this very crucial sector of the national economy. Now, is the time to really put things right and give priority attention to oil which accounts for about 85 per cent of the country’s revenue annually.
www.lapress.org
Charles Arthur. Mar 22, 2003
Caribbean economy could suffer fallout from war.
At a time when most of the region’s countries are suffering economic difficulties resulting from the collapse of traditional agro-export industries such as sugar and bananas, further economic disruption as a result of the war against Iraq, which began March 20, could have dire consequences.
The Caribbean is particularly vulnerable because it is now heavily reliant on revenues from tourism — a sector that each year provides some 30 percent of the region’s gross domestic product, and employment for around one in seven workers. (LP, June 21, 1999).
At a Trinidad summit meeting in mid-February, the 15-member Caribbean Community (CARICOM) released a statement opposing the use of armed force against Iraq. The communiqué, which urged the US and its allies to exercise restraint, stressed that Caribbean leaders were "deeply troubled over the humanitarian tragedy that an outbreak of war could bring about and the disastrous effects it could have on global economic stability."
Tourist arrivals declined sharply in the aftermath of the September 11 attacks in the United States, as a dip in the US economy and heightened fear of air travel deterred many potential visitors during the following winter holiday season. The World Tourism and Travel Council estimates that 364,000 people in the region lost jobs as a result.
According to the Caribbean Tourism Organisation (CTO), an aggressive publicity campaign and slashed airline ticket and hotel prices succeeded in reviving the Caribbean tourist sector during 2002. But this recovery is now in jeopardy.
The CTO bulletin for the first quarter of 2003 warned, "The possibility of war in Iraq undercuts the stability which international tourism, especially long haul travel, needs in order to operate at its best ... The onset of war will likely hit international travel quite hard."
A heightened terror alert could again hit passenger confidence in air travel with immediate repercussions for those Caribbean islands dependent on airlines to bring tourists to their beaches and resorts.
Neither is the important cruise ship sector immune. In December 2002, the P&O Princess Cruises company started canceling stops in Trinidad in the wake of a warning of possible terrorist attacks issued by the British Foreign Office. The warning, made in the context of the Bali tourist resort bomb blast, is believed to be connected to a Trinidad police investigation of a black Muslim cleric known to sympathize with Osama bin Laden. A total of six planned visits to Port of Spain, each of which would have brought about 1,200 passengers ashore, were cancelled before the travel advisory was withdrawn.
In January 2003, Jamaica’s Minister of Tourism, Aloun Assamba, called for the implementation of new security measures at the islands’s main cruise ship ports if her country was to avoid the same fate.
Although few Caribbean politicians have risked incurring the wrath of the US by speaking out against the war, CARICOM Secretary-General, Shridath Ramphal, has been prepared to sound the alarm. Pouring scorn on optimism that the Iraq war might be quickly over, he said, "Do not believe that the Americans sent half a million forces and hundreds of tons of weaponry into Iraq for a couple of weeks. We are in for the long haul. What will that war environment mean for the tourism industry on which the Caribbean relies so heavily?"
The possibility of rising fuel prices is another issue of concern to the Caribbean. The previous hike in the price of crude oil on the international market, coinciding with interruptions to Venezuela's output as a result of the campaign to destabilize the government of President Hugo Chavez, (LP, Jan. 15, 2003) has already had an impact.
In Jamaica, bus and taxi drivers and operators have threatened violent disturbances in response to a hike in fuel costs, while in Guyana and Haiti there have already been a number of strikes to protest recent fuel price increases. If war in Iraq lasts any length of time, or if it is accompanied by sabotage of the country’s oilfields, then international fuel prices would be expected to skyrocket.
As Maurice Odle, economic adviser at the Guyana-based CARICOM Secretariat, warns, "We are still reeling from the effects of 9/11 and we know for sure that our high-energy sectors like the aviation industry would be seriously affected. We can see airfares and jet fuel (prices) going up and that would be tough on airlines and our tourism industry."
One of the region’s main airlines, the ailing BWIA, is already facing monthly losses of around one million US dollars, and in January it laid off 617 of its 2,400 workers, many of them maintenance engineers.
The wider consequences of a prolonged war could also negatively impact on the Caribbean. Higher oil prices would further undermine the fragile economies of the United States, Germany and Japan, and might in the long run lead to a worldwide economic contraction.
Such a scenario would be disastrous for countries like the Dominican Republic and Jamaica that are heavily dependent on external financial sources in terms of investment and capital flows, and Haiti where the economy is sustained almost entirely by the remittances sent back by nationals working abroad.
At a time when most of the region’s countries are suffering economic difficulties resulting from the collapse of traditional agro-export industries such as sugar and bananas, further economic disruption as a result of the war against Iraq, which began March 20, could have dire consequences.
The Caribbean is particularly vulnerable because it is now heavily reliant on revenues from tourism — a sector that each year provides some 30 percent of the region’s gross domestic product, and employment for around one in seven workers. (LP, June 21, 1999).
At a Trinidad summit meeting in mid-February, the 15-member Caribbean Community (CARICOM) released a statement opposing the use of armed force against Iraq. The communiqué, which urged the US and its allies to exercise restraint, stressed that Caribbean leaders were "deeply troubled over the humanitarian tragedy that an outbreak of war could bring about and the disastrous effects it could have on global economic stability."
Tourist arrivals declined sharply in the aftermath of the September 11 attacks in the United States, as a dip in the US economy and heightened fear of air travel deterred many potential visitors during the following winter holiday season. The World Tourism and Travel Council estimates that 364,000 people in the region lost jobs as a result.
According to the Caribbean Tourism Organisation (CTO), an aggressive publicity campaign and slashed airline ticket and hotel prices succeeded in reviving the Caribbean tourist sector during 2002. But this recovery is now in jeopardy.
The CTO bulletin for the first quarter of 2003 warned, "The possibility of war in Iraq undercuts the stability which international tourism, especially long haul travel, needs in order to operate at its best ... The onset of war will likely hit international travel quite hard."
A heightened terror alert could again hit passenger confidence in air travel with immediate repercussions for those Caribbean islands dependent on airlines to bring tourists to their beaches and resorts.
Neither is the important cruise ship sector immune. In December 2002, the P&O Princess Cruises company started canceling stops in Trinidad in the wake of a warning of possible terrorist attacks issued by the British Foreign Office. The warning, made in the context of the Bali tourist resort bomb blast, is believed to be connected to a Trinidad police investigation of a black Muslim cleric known to sympathize with Osama bin Laden. A total of six planned visits to Port of Spain, each of which would have brought about 1,200 passengers ashore, were cancelled before the travel advisory was withdrawn.
In January 2003, Jamaica’s Minister of Tourism, Aloun Assamba, called for the implementation of new security measures at the islands’s main cruise ship ports if her country was to avoid the same fate.
Although few Caribbean politicians have risked incurring the wrath of the US by speaking out against the war, CARICOM Secretary-General, Shridath Ramphal, has been prepared to sound the alarm. Pouring scorn on optimism that the Iraq war might be quickly over, he said, "Do not believe that the Americans sent half a million forces and hundreds of tons of weaponry into Iraq for a couple of weeks. We are in for the long haul. What will that war environment mean for the tourism industry on which the Caribbean relies so heavily?"
The possibility of rising fuel prices is another issue of concern to the Caribbean. The previous hike in the price of crude oil on the international market, coinciding with interruptions to Venezuela's output as a result of the campaign to destabilize the government of President Hugo Chavez, (LP, Jan. 15, 2003) has already had an impact.
In Jamaica, bus and taxi drivers and operators have threatened violent disturbances in response to a hike in fuel costs, while in Guyana and Haiti there have already been a number of strikes to protest recent fuel price increases. If war in Iraq lasts any length of time, or if it is accompanied by sabotage of the country’s oilfields, then international fuel prices would be expected to skyrocket.
As Maurice Odle, economic adviser at the Guyana-based CARICOM Secretariat, warns, "We are still reeling from the effects of 9/11 and we know for sure that our high-energy sectors like the aviation industry would be seriously affected. We can see airfares and jet fuel (prices) going up and that would be tough on airlines and our tourism industry."
One of the region’s main airlines, the ailing BWIA, is already facing monthly losses of around one million US dollars, and in January it laid off 617 of its 2,400 workers, many of them maintenance engineers.
The wider consequences of a prolonged war could also negatively impact on the Caribbean. Higher oil prices would further undermine the fragile economies of the United States, Germany and Japan, and might in the long run lead to a worldwide economic contraction.
Such a scenario would be disastrous for countries like the Dominican Republic and Jamaica that are heavily dependent on external financial sources in terms of investment and capital flows, and Haiti where the economy is sustained almost entirely by the remittances sent back by nationals working abroad.
ANALYSIS-Oil price plunge hands world economy early win
www.forbes.com
Reuters, 03.21.03, 9:50 AM ET
LONDON, March 21 (Reuters) - Just a day into the U.S.-led war against Iraq, oil importers have been handed an early economic victory by an unexpectedly quick and sharp fall in the price of crude.
But analysts caution against premature celebration. Speculative hedge funds have sold heavily short on crude futures on London and New York exchanges over the past two weeks, leaving prices vulnerable to a sudden leap on signs of a snag in the military campaign.
U.S. and British troops secured some of Iraq's southern oilfields on Friday in an early success for the invasion, but some wells were set on fire and traders are on alert for any sign of long-term damage to Iraq's oil industry.
"One should appreciate how easy it is for things to go wrong," said futures brokerage Fimat in a report. "Ignoring this would be terrifically imprudent."
For weeks, analysts had expected oil prices to drop once the attack got under way as the "war premium" was eroded.
But no one was prepared for a $10-a-barrel rout that began several days before the first shot was fired.
On Friday, benchmark Brent crude for May was trading close to $25 a barrel, down from a peak of $34.55 nearly two weeks ago. U.S. crude has fallen even more heavily, having hit $39.99 at the end of February.
The steady climb in Brent prices from a November low of $23 has been all but erased in the space of seven trading days.
Barring uncertainties from Iraq, many oil traders say a Brent price of $25 is roughly in line with fundamentals but that balanced view may yet turn bearish if ultra-thin U.S. commercial stockpiles build quickly during the low-demand second quarter.
"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas of London's Centre for Global Energy Studies. "OPEC is now producing more oil than has been lost."
SWITCHING OUT OF OIL
Battered equities markets have raced higher as investors and funds switched from oil and safe-haven bonds into the financial sectors depressed by months of war worries and economic gloom.
Consumers and oil-importing governments grappling with the highest prices in a decade will have breathed a sigh of relief as prices deflated, easing fears of a fully-fledged price shock on economies struggling to escape recession.
"Clearly it's a positive thing that the price has come down. It should relieve inflationary pressures and improve business and consumer sentiment. But the pace of the fall has been a surprise," said Royal Bank of Scotland economist Tony Wood.
Even OPEC producers should be pleased by the fall back into the cartel's preferred $22-$28 price band because the high price was stalling demand from importers.
The abrupt plunge was led by speculative hedge funds. As diplomacy failed and war became inevitable they took profits from long positions and then began selling heavily short as U.S. forces prepared for what many dealers believe will be a quick, overwhelming victory.
But if the campaign drags on, oilfields are severely damaged or if further disruptions to world supply emerge, speculators desperate to cover exposed short positions could send prices bouncing sharply higher.
"Instead of positive news flows, prices have been moved by a speculative bet of staggering proportions," JP Morgan oil analyst Paul Horsnell said.
"In short, the market seems to have pushed far too far, far too fast and on the basis of far too little hard information."
Prices reacted similarly during the first Gulf War, falling as U.S. troops moved into battle -- but then they were helped by the release of emergency inventories held by the International Energy Agency.
This time around the Organisation of the Petroleum Exporting Countries (OPEC) pre-empted any release by pumping extra oil months in advance, with Saudi Arabia sending tens of millions of extra barrels toward the United States since January.
These barrels coupled with recovering output from strike-hit Venezuela have helped offset the effective stoppage of Iraq's 1.7 million bpd of exports, which came to an end this week as international traders shied away.