There is no question that the concerns of the Bush Administration, Central Bank, and American consumers have shifted toward rising… … inflation and consumer prices. While there are certainly sectors of the economy that still have holes to dig out of, a one percent rise in May retail sales validated statements recently from Federal Reserve Chairman Ben Bernanke, and others, that the economy seemed poised for improvement.

Many analysts were quick to suggest that today’s (June 12) Commerce Department report that showed May having the largest retail growth in six months, was an indication that early results from 57 million tax rebate checks are positive. It will take several months to fully gauge the effects of the stimulus plan, but firm retail sales provided a tremendous psychological benefit in lieu of growing inflation concerns.

Many central bank leaders, including Bernanke, have been hinting lately that they are confident the economy has been positioned for a turnaround with the tax rebate stimulus and powerful interest rate cuts taking effect. Some economists believe it will not be long before the Fed must begin to reverse the rate cuts to combat the burgeoning consumer prices and weak dollar. Inflation has been on hold until the economy ignited. The timing of a shift in gears from economic focus to inflation control is crucial to ensuring economic growth, while keeping consumer prices affordable for typical Americans.

Light crude oil futures climbed sharply today after a brief dip, which offset early stock market enthusiasm driven by the strong retail gains. New York trade closed with a barrel of oil at $136.74. After several strong up and down swings, oil is once again at a high point. Gas has settled above $4 for several days now, with the national retail gas average hovering around $4.05.

Oil, gas, and staple groceries have been regularly cited as the key concerns of the Fed with regard to inflation. The weak dollar, combined with high consumer prices makes it challenging for lower to middle class Americans to maintain the quality of life they have been used to. It costs a US driver over $52 to fill a modest 13-gallon gas tank at the moment. Cheese, milk, and eggs are among the staple food items that are overwhelming many grocery shoppers.

The good news for the optimistic American is that more and more economists believe the US is churning at economic bottom, gearing up for growth. Oil and gas reports have been showing a shift in the supply and demand equation, suggesting many businesses and consumers have reached their limit with prices. The dollar, while not thriving, has been holding steady and attempting to fight its way back to reasonable value, in spite of rising oil and gas.

The dollar touched 108 yen today in early Asian currency speculation, a mark unseen for several months. The buck currently nets 107.74 yen. The dollar also surged against the major European currencies. The Euro has dipped a bit from yesterday’s trade and is worth $1.545, while the pound has dropped about a pip to $1.9474 in early Asia.
It is certainly hard to suggest that the picture is rosy at the moment. However, it is hard to believe that markets are not poised for some type of major directional move in the near future. One environmental factor that has recently put a literal damper on hopes for reduced consumer prices has been tragic weather conditions throughout the Midwest. Many Midwest states, including Iowa, a leading wheat and corn producer, have been devastated by floods and tornadoes. A revised outlook for oil production has lowered expected corn production by three percent, simply based on the effects of the flooding.

Market Recap

US equities slumped Wednesday. The Dow lost 205 points to close at 12,083, while the NASDAQ and S&P were down 54 and 22 points, respectively. Oil spiked up again on supply concerns and dollar weakness. Inflation data shows high prices major concern which prompts investors to think rate increases might be coming. Stocks were modestly strong on Thursday on the back of impressive retail data. However, rising oil put a little bit of a damper on early gains. The Dow managed a 57 point gain, with the NASDAQ and S&P up 10 and 4 points. Yahoo and Microsoft have ended talks but Yahoo and Google announced a huge search ad partnership agreement. The dollar strengthened against most major currencies.

Neil Kokemuller
Thursday, June 12, 2008
11:17 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.