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WSJ Survey: Economists Say Energy, Food Price Rises Driven By Fundamentals

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A Wall Street Journal survey of 53 economists found the great majority said that the spike in food and energy prices is the result of supply and demand, not speculation. At the same time, the average forecast among this group is that oil will be at $93 a barrel by year end. While the article does not elaborate, one has to assume it is due to an expected slowdown in emerging economies as the impact of the US recession starts to hit China and India.

From the Journal:

Fifty-one percent of the respondents said demand from China and India was the prime factor in soaring energy prices, and 41% said demand was the chief contributor to rising food costs. Constrained supply was cited second most-often; 20% blamed supply problems for higher food prices and 15% for increasing energy prices.

“It’s a combination of demand and supply issues,” said Joseph Carson of AllianceBernstein.

But while most of the analysts attributed the food and energy costs to fundamental trends, 11% of the economists see a potential bubble driven by speculation. “Commodity markets have become a strange safe haven, with prices well out of line with underlying market fundamentals,” said Diane Swonk of Mesirow Financial. “I am dumbfounded that a report like Friday’s employment report triggered a rally in oil prices… Just plain ridiculous.”….

The survey…. showed that the economists, on average, expect the price of crude to fall to about $105 a barrel by the end of next month from the current record-high levels above $120 and to decrease to about $93 by the end of the year. Their expectations for overall inflation continue to rise. They expect the consumer price index, which rose 4% year-over-year in March, to increase 3.6% in June compared with a year earlier.

I have trouble reconciling the consensus 25% fall in the price of oil in a mere seven months with changes in fundamentals, but I’m not the one doing the forecasting.

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9 comments

  1. Anonymous

    A 2 trillion dollar war funded with borrowed money in a fractional reserve global banking system with a fiat based world reserve currency certainly didn’t have anything at all to do with it.

  2. Steve

    This is a matter for investigation, not theory.

    In 1979, when CBOT forced a reduction in open interest in silver futures, Nelson Bunker Hunt replied, “You can’t do it. You wouldn’t dare. You’re the last bastion of free enterprise in the world.”

  3. François

    Expect no good news on the commodity/energy front until refi interest rates cover REAL inflation costs.

    REAL returns are negative in most countries… All cash pools are shrinking by the day in terms of purchasing power.

    How can anyone expect anything but a run to physical assets in this situation?

  4. Anonymous

    My respect for the economics profession is another casualty of the long night (2001-2008). I really don’t see how they could have any more wrong on most economic matters if they tried.

    Think about what they would be admitting if they said the US markets were not free in the economic sense. Well, at least they are tenacious.

  5. Anonymous

    A commodity ‘bubble?’ Is that like negative equity?

    I just love the new math.

  6. S

    Wall Street economists and strategists also said that Dow 20,000 waqs right around the corner in 2000. Wall Steet has no soul and shuld be treated accordingly. Salespeople making money selling.

  7. Anonymous

    Swonk flips coins and listens for winds, and makes more calls that are as valuable as…. her previous calls; does her dad own the business?

    Diane Swonk Releases Mid-Year Economic Review – The Case for a Rebound in Growth

    http://www.masonryconstruction.com/industry-news.asp?sectionID=0&articleID=514588

    Re: “The question, of course, is whether or not second-quarter gains can be maintained. Recent data, however, is encouraging. Consumer confidence improved in May, despite a $1-per-gallon surge in gas prices, and orders for new equipment continued to show decent gains in April,” notes Swonk.

    The problem with these overpaid retards is that they are not accountable for what they predict and what ever they say is held to be truth……these are the people that shape the future and end up running, I mean ruining the country!

  8. Observer

    Economists of the current era will almost all never admit that bubbles can occur, and do so alarmingly often. Almost all of them denied a housing bubble could happen, even when the data was fairly shouting it before August 2007. Most economists thought that equity prices were just peachy before March 2000, and got riled with the Mighty Greenspan dared for a moment to let his empirical bad angel do the talking and raise a squeak about irrational exuberance.

    It is hard not to be cynical about the modern economics profession. But the damage they do is profound, even if the need for their work is fundamental.

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