Random inflation observations

21May07

Stealing a bit from Adam Warner at the Daily Options Report we presents a handful of quick (random) observations on the many faces of inflation.

Bruce Stanley at WSJ.com on the battle shipping lines are fighting to try and hold the line on rates this year.

Shipping lines are working to turn the tide on freight rates this year, with potential implications for retailers, manufacturers and others heavily dependent on overseas cargo.

This also reminds us of an earlier post we noted by Jon Markman at MSN Money on the world of standardized container shipping.

Zero Beta looks at the problem of excluding the volatile (and rising) costs of food and energy from oft-quoted CPI statistics.

So inflation in food and energy is a problem – a big one at that. Just because the actual price of other baskets of goods have not risen as much, the average consumer has seen them rise dramatically as a percentage of their income…

One thing that may be fueling domestic inflation is the continued weakness in the U.S. Dollar. Barry Ritholtz at the Big Picture notes the possibility of a reversal in this trend due in part to the fact that it is driven by U.S. investor’s penchant for foreign shares.

One hopeful, albeit small, sign of reduced pricing pressure comes from the world of investments. Russel Kinnel at Morningstar.com presents some statistics showing 2006 as the third straight year of reductions in mutual fund expense ratios. While the reductions are small they are an encouraging sign that competition from ETFs is bringing about a change in mutual fund pricing trends.

The underlying theme in all these posts is that good old fashioned, Econ 101, competition works. In the world of shipping and mutual funds where there is overcapacity we see prices coming down. In the world of gasoline where increased demand and (temporary) supply reductions we see higher prices. For the U.S. Dollar competition from overseas markets is reducing demand. In short, most of the time markets work. The challenge is figuring this out ahead of time to take advantage.

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