The Absurd Report

There remain plenty of investors who worry about inflation, not least those still buying gold. However, it is one risk Ben Bernanke and fellow members of the US policy-making Federal Open Market Committee are not concerned about. Statements from the FOMC�s monthly meetings have stressed �subdued inflation� more than once�The cost of oil will be a key factor to watch next year. There can be no doubt that central bankers are eyeballing it too. Indeed, it is likely that the recent halt of oil�s rally at around $70 per barrel has come as a relief. For, in the same way that a rise in long-term interest rates can choke off a recovery because it makes it more difficult or expensive for companies to obtain credit and fund their businesses, high oil prices and the resultant higher costs of transportation as gasoline costs rise can dampen economic growth. In 2008, oil prices continued to surge even as economies were slowing down and there has continued to be a debate about just how much of that was due to speculators. There are plenty of signs that speculative pressures are less now than they were. Nevertheless, another huge run up in oil cannot be ruled out. Even as core inflation remains benign, fragile economies can be knocked back by various type of price surges, oil being one of them.

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