On social media, Nick Timiraos highlighted this great research note from Andrea De Michelis, Musa Orak, Avani Pradhan and Albert Queralto of the Federal Reserve. The opening paragraph:
> Elevated oil prices and heightened geopolitical uncertainty have renewed interest in a longstanding policy question: do supply shocks like oil-price increases pose a transitory or a persistent threat to price stability? This note sheds light on this question by providing new evidence on whether the inflation process has changed. In an earlier note, De Michelis et al. (2024) documented that core inflation had become more inertial after the pandemic, implying that supply shocks might be expected to have more persistent effects if this greater inertia continued. This note updates those results using a similar methodology with data extended through the middle of this year and documents a second change in the inflation process: an increase in the pass-through from oil prices to core inflation.
This debate happened early in the year and it's over: Nobody is Looking Through these events as temporal one-offs. This is systemic instability.
It's been eight months. It will be more months. Then the SPRs need to be refilled, which will take years. YEARS. Then the NEW SPRs that all of these countries create, because they don't want to deal with this shit again, are going to need to be filled.
>In addition, even if our results stem from a structural change reflecting, for instance, a shift in behavior of price setters, we cannot say whether this change will endure or reverse.
This is the important part, because although it's not in the scope of their research it's pretty obvious what the issue is, creeping corporate consolidation and monopoly power. With fewer competitors in most consumer goods markets, larger producers have more leverage to use oil prices as an excuse to increase their prices (more pass through). Then they also have less pressure to reduce prices or delay more increases if oil drops.
That period where the commodity is down and secondary users haven't dropped prices in competition yet is key. We can see that just in refinery crack spreads, which have been at or near historic highs for months despite underlying volatility in oil. And that's just the most directly dependent oil consumption industry.
Good material to dry one's eyes right out. Does floating storage ever get taken into account? No. Never. Why? Because price spikes through the cycle are where big bank algos make the most money. The volatility that occurs is how these pigs get rich. Asking a central banker to comment on oil price stability is possibly the most ridiculous thing.
Absolutely. You're 100% correct. Core inflation effect 10-4. Oil Price volatility has no impact or bearing on inflation. Not including floating storage in oil reserves doesn't impact futures prices puts or calls and the whipsawing from volatility trading has no direct impact on pump prices of which are not used in CPI calculations... not in Advanced Economies anyway. They adjust the basket of goods accordingly adding and subtracting items as they deem fit to meet their predicted targeted projection. Pro tip. When an economist is talking or when they publish a white paper... they're lying.
[OP] barkinginthestreet | 23 hours ago
On social media, Nick Timiraos highlighted this great research note from Andrea De Michelis, Musa Orak, Avani Pradhan and Albert Queralto of the Federal Reserve. The opening paragraph:
> Elevated oil prices and heightened geopolitical uncertainty have renewed interest in a longstanding policy question: do supply shocks like oil-price increases pose a transitory or a persistent threat to price stability? This note sheds light on this question by providing new evidence on whether the inflation process has changed. In an earlier note, De Michelis et al. (2024) documented that core inflation had become more inertial after the pandemic, implying that supply shocks might be expected to have more persistent effects if this greater inertia continued. This note updates those results using a similar methodology with data extended through the middle of this year and documents a second change in the inflation process: an increase in the pass-through from oil prices to core inflation.
throwaway9gk0k4k569 | 6 hours ago
This debate happened early in the year and it's over: Nobody is Looking Through these events as temporal one-offs. This is systemic instability.
It's been eight months. It will be more months. Then the SPRs need to be refilled, which will take years. YEARS. Then the NEW SPRs that all of these countries create, because they don't want to deal with this shit again, are going to need to be filled.
Oil prices will be high for YEARS.
Consumers have no idea how f**ked they are.
Berofaforaftor | 20 hours ago
>In addition, even if our results stem from a structural change reflecting, for instance, a shift in behavior of price setters, we cannot say whether this change will endure or reverse.
This is the important part, because although it's not in the scope of their research it's pretty obvious what the issue is, creeping corporate consolidation and monopoly power. With fewer competitors in most consumer goods markets, larger producers have more leverage to use oil prices as an excuse to increase their prices (more pass through). Then they also have less pressure to reduce prices or delay more increases if oil drops.
SisyphusRocks7 | 18 hours ago
That period where the commodity is down and secondary users haven't dropped prices in competition yet is key. We can see that just in refinery crack spreads, which have been at or near historic highs for months despite underlying volatility in oil. And that's just the most directly dependent oil consumption industry.
bullitt1627 | 22 hours ago
Good material to dry one's eyes right out. Does floating storage ever get taken into account? No. Never. Why? Because price spikes through the cycle are where big bank algos make the most money. The volatility that occurs is how these pigs get rich. Asking a central banker to comment on oil price stability is possibly the most ridiculous thing.
Berofaforaftor | 20 hours ago
That's not what the research is about at all. It has nothing to do with trying to explain oil price stability.
bullitt1627 | 15 hours ago
Absolutely. You're 100% correct. Core inflation effect 10-4. Oil Price volatility has no impact or bearing on inflation. Not including floating storage in oil reserves doesn't impact futures prices puts or calls and the whipsawing from volatility trading has no direct impact on pump prices of which are not used in CPI calculations... not in Advanced Economies anyway. They adjust the basket of goods accordingly adding and subtracting items as they deem fit to meet their predicted targeted projection. Pro tip. When an economist is talking or when they publish a white paper... they're lying.