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The dollar inflation is only part of the story behind oil price records.
submited on 23.06.2005 in category Monetary policy | Regulated markets | Macroeconomic developments
submited on 23.06.2005 in category Monetary policy | Regulated markets | Macroeconomic developments
Part of the reason for the long-term rise of oil prices is purely monetary, viz. inflation of the dollar and of the euro. Prices of most tradable goods, not only the prices of oil, have risen substantially for the past two years, especially when we talk about metals. On average, industrial goods prices rose by 58% in three years. Metal prices rose respectively by 76%, and oil price doubled for the same period.
Although real price of oil is far from its historic high, it is important how far it can go and how long it will stay so high, for it may be destructive for some productions. As oil supply is highly dependent on political discretion, market prices currently – like in any other periods in recent history – reflect doubts about OPEC’s adequate reaction to increased demand.
But there is more to that story, namely the relative price increase of oil, i.e. price measured in quantities of other goods. Eventually the oil price increase in real terms is what matters for macroeconomics. For the year to June 2005, we saw oil price rising by some 60% - significantly quicker than price of the rest of the industrial goods (prices on average rose by 9%, metals got more expensive by 19%). Thus, real price of crude oil rose substantially in the past twelve months.
A year ago, the relative price trends was reverse. The oil had been depreciating in terms of other industrial goods for a good while in mid-2004. Therefore the current trends of oil appreciation may be kind of correction of what happened in the past. Anyway oil is still some 30% more expensive in real terms that it was on average in the last five years.
Although real price of oil is far from its historic high, it is important how far it can go and how long it will stay so high, for it may be destructive for some productions. As oil supply is highly dependent on political discretion, market prices currently – like in any other periods of recent history – reflect doubts about OPEC’s adequate reaction to the increased demand.
Although real price of oil is far from its historic high, it is important how far it can go and how long it will stay so high, for it may be destructive for some productions. As oil supply is highly dependent on political discretion, market prices currently – like in any other periods in recent history – reflect doubts about OPEC’s adequate reaction to increased demand.
But there is more to that story, namely the relative price increase of oil, i.e. price measured in quantities of other goods. Eventually the oil price increase in real terms is what matters for macroeconomics. For the year to June 2005, we saw oil price rising by some 60% - significantly quicker than price of the rest of the industrial goods (prices on average rose by 9%, metals got more expensive by 19%). Thus, real price of crude oil rose substantially in the past twelve months.
A year ago, the relative price trends was reverse. The oil had been depreciating in terms of other industrial goods for a good while in mid-2004. Therefore the current trends of oil appreciation may be kind of correction of what happened in the past. Anyway oil is still some 30% more expensive in real terms that it was on average in the last five years.
Although real price of oil is far from its historic high, it is important how far it can go and how long it will stay so high, for it may be destructive for some productions. As oil supply is highly dependent on political discretion, market prices currently – like in any other periods of recent history – reflect doubts about OPEC’s adequate reaction to the increased demand.
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