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Will Oil Grease The Inflation Wheel?

The Mortgage Bankers Association’s chief economist, Douglas Duncan said that the trigger for price declines is always the loss of jobs and doesn’t see a slowdown in employment, “not until 2006.” He predicts that 2005 will set records [1] “and only an unexpected roadblock of monumental size will slow its pace”

Well, we may have a potential roadblock, sort of. Oil Prices have often been a trigger for inflation and higher long term rates such as mortgages.

Then why isn’t it happening now?

Well, here’s a thought…after adjusting for inflation, we are still well below inflation-adjusted oil prices [2] that peaked at $94 per share in 1980. Core inflation is still within the Fed’s confort zone but energy prices are rising [3].