Tapping the Oil Reserve, Rising Wages, Higher Rents, Pandemic, War, and Inflation.
Who is really the immature baby? The one pointing the finger.
Oil prices continued their fall on Thursday after reports that President Biden is considering a plan to release up to 180 million barrels of oil, a move to counteract the effects on the oil market from Russia’s war on Ukraine.
Brent crude, the international benchmark, dropped about 5.9 percent to $106.80 a barrel. West Texas Intermediate crude, the U.S. benchmark, fell 6.1 percent to $101.25 a barrel. Oil prices also fell immediately following reports of the plan Wednesday night.
Mr. Biden could announce his plans later on Thursday: His public schedule, released Wednesday night, showed that he is expected to speak in the afternoon on “actions to reduce the impact of Putin’s price hike on energy prices and lower gas prices at the pump for American families,” referring to President Vladimir V. Putin of Russia.
The average price of gasoline is $4.23 a gallon, according to AAA, the motor club. That’s about the same as it was a week ago but up 62 cents a gallon in the last month.
If fully enacted, Mr. Biden’s plan would release one million barrels of oil a day from the Strategic Petroleum Reserve, which contains about 550 million barrels total, for up to 180 days, a step toward keeping gas prices down and helping the United States endure highs and lows in supply and demand.
Oil prices have also dropped this week after peace talks between Russia and Ukraine showed the first signs of meaningful progress and as China, the world’s largest oil importer, deals with its biggest coronavirus outbreak of the pandemic.
The Fed’s favorite inflation gauge climbed 6.4 percent in February.
Inflation continued to run at the fastest pace in 40 years in February, fresh data released on Thursday showed, at a moment when war in Ukraine and continued supply chain disruptions tied to the coronavirus promise to keep prices rising.
Prices, as measured by the Personal Consumption Expenditures Index, rose by 6.4 percent in the year through February, the fastest inflation rate since 1982 and faster than the 6.1 percent increase in the year through January.
They climbed 5.4 percent after stripping out food and fuel costs, which can be volatile, the data showed. That pace was also faster than the prior month’s reading, which was 5.2 percent.
The current pace of increase is far faster than the 2 percent annual inflation that the Federal Reserve targets. While central bankers expect today’s rapid inflation to cool by the end of the year, falling to 4.3 percent by the final three months of 2022, that rate of inflation would still be too quick for comfort.
Central bankers began raising interest rates earlier this month, lifting them by a quarter percentage point, and have signaled more to come as they begin to wage an assault on rising prices. By making borrowing more expensive, the Fed can weigh on demand, allowing supply to catch up and eventually temper price increases.
Rising wages could help prolong inflation.
Economists have been waiting for Americans to shift from buying goods, like furniture and appliances, and toward spending on vacations, restaurant meals and other services as the pandemic fades, betting the transition would take pressure off supply chains and help inflation to moderate.
Rapid wage growth could make that story more complicated. Demand for services is rising just as many employers are struggling to find workers, which could force them to continue raising wages. While positive for workers, that could keep overall inflation brisk as companies try to cover their labor costs, speeding up price increases for services even as they begin to moderate for goods.
Heavy spending on goods during the pandemic has been a driver of the recent inflation burst. Consumers began snapping up physical products a few months after pandemic lockdowns began and have kept on buying. Spending on services also has recovered, but much more slowly. That shift in what people are purchasing has roiled supply chains, which were not built to produce, ship and deliver so many cars, treadmills and washing machines.
Policymakers spent months betting that as the virus waned and consumers resumed more normal shopping patterns, prices of goods would slow their ascent or even fall. That would pull down inflation, which has been running at its fastest pace in 40 years.
But that transition — assuming it happens — may do less to cool inflation than many had hoped. A big chunk of what the government defines as “services” inflation comes from rental housing costs, which often move up alongside wage growth, as households can afford more and bid up the cost of a limited supply of housing units. And when it comes to discretionary services, like salons and gyms, labor is a major cost of production. Rising pay likely means higher prices.
OPEC and Russia stick to a modest oil increase.
With analysts warning of a coming oil supply crunch, OPEC and its allies, including Russia, decided on Thursday to stick with their previously agreed plan of modest monthly increases. The group, known as OPEC Plus, said it would increase oil output in May by 432,000 barrels a day, a slight uptick from the usual increase of 400,000 barrels a day for technical reasons.
In a news release following what was probably a very brief meeting, OPEC Plus repeated its thinking of a month earlier. The group said that the outlook was for “a well-balanced market” and that recent volatility in prices was “not caused by fundamentals, but by ongoing geopolitical developments,” apparently meaning the war in Ukraine.
In contrast, many analysts are warning that with oil storage tanks at low levels, sanctions over the war in Ukraine and a kind of buyers’ strike underway against Russian oil, a major supply crunch could develop with serious implications for the global economy.
OPEC Plus’s announcement arrived as President Biden is expected to make public his reported plans to release up to 180 million barrels of oil from emergency reserves in response to rising oil prices and in anticipation of possible spikes in demand or drops in supply.
