At $58.51 yesterday for a barrel of WTI crude oil, the price has stabilized after falling below $60 early last week. Reflation probably is too strong a word for the likely, prospective path of oil prices, but several factors argue against a repeat of the near-$20 per barrel price decline that occurred in August.

Demand for petroleum products is firm. The four week average of gasoline demand, according to figures from the U.S. Department of Energy, is running 4% ahead of one year ago despite an 18% rise in gasoline prices to an average $2.67 per gallon so far this year versus an average $2.23 during all of 2005.

The earlier decline in gold has stabilized with prices yesterday rising to $597.25 per ounce. That certainly is down from the May high of $725.00 but a concerted move below $600 has been difficult since early September.

Natural gas prices recently have backed up to $6.71/mmbtu from the early October low of $4.01. The Edison Electric Institute reports U.S. electricity output has improved to near stability versus last year versus earlier 7-8% y/y declines.

Perhaps these reflation whiffs will prove fleeting. The market for Treasury securities seem to suggest they will as evidenced by the 5-year TIPS spread which has fallen to 2.2% versus a high of 2.7% early this year and the implied forward inflation rate for the next five years is down to 2.47%. Much will depend on the economy's strength and the Fed's response to it.

Inflation Persistence in an Era of Well-Anchored Inflation Expectations from the Federal Reserve Bank of San Francisco is available here.