Energy
The long-term goal of energy policy should encompass more than just security and decarbonization: the goal should be to ensure energy capacity abundance and stable energy cost.
As was warned in our May CPI preview (Peak Inflation? Not So Fast, My Friend. Upside Surprises Loom Large), the "peak inflation" calls were likely to prove premature. With the rapid rise of gasoline prices in the first half of June and passthrough from higher US benchmark natural
The White House should not use the refining capacity crunch as a reason to avoid grappling with the fragile state of crude oil supply, as it appears to be doing. In gasoline and other refined products, there are two related but separable sources of scarcity: crude oil and refining capacity.
The Department of Treasury should be making use of the Exchange Stabilization Fund (ESF) to target accelerated supply-side responses and insure critical producers against downside risks.
Given the discretion afforded the Secretary in utilizing the ESF, and the strong correlation between commodity price volatility and exchange rate volatility, the Secretary has the authority to establish a Supply Insurance and Acceleration Program for key commodities.
Summary Although neither the magnitude nor composition of last week's inflation print surprised us, especially given the knock-on effects from the 'Ukraine shock', they did surprise the CPI forecasting consensus. In response, Chair Powell and the rest of the committee will likely deliver two innovations:
The White House and Congress should consider an “all-of-the-above” approach oriented around three objectives: (1) investments where productive capacity; (2) targeted policies for reducing sectoral demand; and (3) policies that facilitate greater competition and technological diffusion.
While it is true that base effects should create more favorable terrain for year-over-year headline CPI inflation readings to decline in this calendar year, the full implications of the current commodity supply shocks stemming from the Ukraine invasion still remain underrated. It is plausible that we return or
Creative production contracts involving the sale of put options (as we previously advocated for), could help set a soft “floor” on oil prices, preventing a large-scale return to consumer purchases of gas-guzzling cars.