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Economy in Brief

Inflation Pressure Up
by Tom Moeller May 22, 2006

Gold prices near $700.00 per ounce of late point up the not-so-latent market concerns that inflationary pressure is rising. Since 1980 there has been a 56% correlation between the level of gold prices and the y/y change in consumer prices.

Concerns were further heightened by the report that "core" consumer price inflation in April was 2.3% (y/y). That was no higher than during early 2005 but it was an acceleration from 2.0% last summer. Faster growth in shelter prices is behind some of the acceleration though prices in many other categories of services, such as education & communication, recreation and public transportation have accelerated as well. Tempering the acceleration has been a sharp drop in in medical care services price inflation.

Despite slower growth in gasoline demand, retail gasoline prices have moved higher to $2.95 per gallon. Spot gasoline prices fell to under $2.00 per gallon in New York, down roughly 10% from the peak early this month, while crude oil prices similarly are off nearly ten percent from their highs.

Industrial metal prices also have been rising. The JoC-ECRI Industrial Metals Prices Index is up 24.5% this year as prices for aluminum (up 32.9%), copper scrap (up 49.7%) and zinc (up 88.0%) all have been strong. High grade copper prices are up 73.5% since year end '05. Growth in industrial production is behind the rise and during the last ten years there has been a 49% correlation between the level of industrial metals' prices and the y/y change in OECD Big Seven industrial production.

Weekly Prices 05/16/06 12/27/05 Y/Y 2005 2004 2003
Light Sweet Crude Oil, WTI  (per bbl.) $69.54 $58.16 42.0% $58.16 $41.78 $32.78
U.S. Retail Gasoline (per gallon) $2.95 $2.20 36.2% $2.27 $1.85 $1.56
Gold: Handy & Harmon (per Troy Oz., EOP) $692.00 $507.40 64.8% $507.40 $443.40 $416.25
High Grade Copper (Comex, /Lb., EOP) $3.98 $2.28 177.8% $2.28 $1.54 $1.04
Stainless Steel Scrap (/ton, EOP) $1,574 $1,268 -4.1% $1,268 $1,558 $1,265
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