Inflation at Bay

Back in November, I was confidently predicting that oil would be worth $115 a barrel by July 1. This wasn't because I expected a roaring recovery and the great demand for oil that would create. It was, rather, because I expected that the "quantitative easing" of two successive administrations used as stimulus and as a way of resolving a credit crunch, would have its usual effect on wages and prices. The world price of crude oil is set in US dollars, and historically the price is a good proxy for inflation.

We are drawing near that date, and it seems obvious that I was wrong. The price has of course fluctuated since November, but the highest point it reached was roughly $87, in early April. It is presently at $74.

Now, it is my firm belief that there is no difference anywhere that does not make a difference somewhere else. So: what difference somewhere else does this make? An increased quantity of dollars should other things being equal reduce their value relative to goods and services (and other currencies). That in turn should have rendered my prediction spot on.

I think I went wrong chiefly by failing to anticipate the European crisis, especially with the southern tier countries, and the consequent debasement of the euro. This has strengthened the dollar. Not just by definition, if the dollar is measured in euros, but by virtue of a flight to safety.

Even the Iranian central bank, presumably staffed by people who believe the US is the Great Satan, is swapping euros for dollars these days.

Inflation has been kept at bay, but the situation remains extremely worrisome.