We’ve been discussing for quite a while the lag effects of inflation on the consumer – while many are complaining about their costs today, much of it has yet to really hit the consumer. This is part of the reason why I find any second half recovery almost criminal in nature to sell to the public – that said the stock market MIGHT go up, we never know – but it won’t be an economic recovery in the 2nd half. One area that inflation has not even begun to be seen is home heating – for those of you following along we’ve been heavily into coal (since early last fall) and natural gas (since late in the winter). As we’ve explained in the past, air conditioning rates will go up this summer but due to long term contracts the real hit will be NEXT summer. Same goes for winter – we didn’t feel almost any of the pass through costs this winter. Those of you in the north, start budgeting – your next winter’s bills are going to begin to show “inflation” (and they won’t fully discount the increase either because of the regulation in the industry).

Now, the company line is, and has been “inflation will abate in the 2nd half as the economy slows” – almost every pundit and Federal Reserve official whispers these sweet nothings in our ears. I’m going to take the other side of that trade (as I have since blog inception) and say, inflation is going to whack you along the head in the 2nd half and 1st half 2009 (except there will be no inflation in houses, iPods and flat panel TVs – none of which you can eat or use for energy; ok maybe you can burn them for some short term heating) So therefore the government reports will show only minor inflation. [News of the Day - Inflation]

So we can look forward to another year of government statistics telling us, since home prices are going down, and electronics continue to hold steady – inflation is steady as she goes. Meanwhile the few of you out there who are forced to buy non essentials like “food”, “toilet paper” or “home heating” are going to see a different story. But don’t you worry, you can buy a SUV for 8% less than last year. I’ll be officially striking all government reports for the next year (err, decade), including this Friday’s jobs report – for a truth check have some fun with [Employment Reports and More Fed Actions] – keep in mind, this is a government that somehow told us that the economy added 45,000 construction jobs last month in their “estimation” Nice! Nothing like a nice steamed brew of Kool Aid on a Friday morning. But let’s get back to those poor suckers in the northern 2/3rds of America. And readers, let’s count down the days until Congress trots out those utility CEO’s so they can berate them publicly in the “Congressional Oversight Meeting into Predatory Pricing of Utilities”. Instead of said Congressmen/women looking into the mirror to see the major culprit.

• While people in most of the country may be worried about their summer air conditioning bills, many residents in the Northeast are way beyond that: They’re already thinking ahead to next winter’s heating bills. And what those who heat their houses with oil are seeing is giving them sticker shock.
• Retail heating oil prices have risen to more than $4.50 a gallon, nearly double what they were last year at this time.
• Consumers — already on edge with rising gasoline and food prices — will probably be outraged when they calculate their oil bills for next winter, said Jamie Py, president of the Maine Oil Dealers Association. (oh they will be so outraged, thankfully the 2nd half recovery will make them a bit less outraged)
• The angst over heating oil prices is particularly acute in New England, where a higher proportion of people use oil as their primary heating source than any other region, ranging from more than 75 percent in Maine to about 40 percent in Massachusetts.
• “If prices still keep going up, they’re going to find people frozen to death next winter because they won’t have the money to buy oil,” Foss said.
• Bangor-based Webber Energy Fuels, which operates across Maine and parts of New Hampshire, has been selling fixed-price programs at $4.70 to $4.80 a gallon for next winter, said President Mike Shea. Last year at this time, the price was $2.50 to $2.60.
• The residential price of heating oil rose 59 percent from the first quarter of 2007 to the same period this year. (thats a tad higher than the government inflation but not to worry, you can buy Tshirts for 1% higher than last year – buy Tshirts, burn them to heat your home and hence you have no inflation)

Again this is just home heating oil – the pass through effects of coal and natural gas will take much longer to filter through the system due to contracts and regulation. But we can look forward to years… and years… of higher energy costs. Let’s all cheer for that global recession so we can save a few bucks this winter. And let’s keep voting down solar, wind, and any other alternatives – go team Congress!

Last 5 posts by Trader Mark

• Weekly Mortgage Applications Of Interest Today; Fed Already Loses $5 Billion on Mortgages - June 3rd, 2009
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