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by Carl Pellegrini    Mon, Oct 24, 2005, 10:46 PM

The Consumer Price Index rose at a 9.4% SAAR (seasonally adjusted annual rate) in the 3Q 05, bringing the year to date increase to 5.1%. This compares to 3.3% for 2004. Why is inflation rising? It is more than energy!

It is funded by the M3 monetary aggregate (a mere $10.03T amount) growing at a 10.7% SAAR over the last 13 weeks. It is also funded by Total Short Term Credit (another small number - $6.93T) growing at a 13.7% SAAR for the last 13 weeks. It is supported by import inflation from the European Union, up 5.0% for the last 12 months, and import prices from Japan are now up 0.8% since September 04. Imported Motor Vehicles & Parts are now up 1% from 12 months ago. The recent revaluation of the Chinese Renminbi will not show up at retail / Walmart for several more months.

It is because transportation costs are on the rise, led by rail rates up 11.6% for the last 12 months, followed by truck rates up 6.2%, and air freight costs up 5.4%. As crude energy costs pass through the economic system, then business firms will realign selling prices of their products with their new cost structure, in the context of the competitive environment. In the last 12 months, Crude energy materials are up 64.4%. Intermediate energy goods are up 31.1%, and Finished energy goods are up 27.8%. The U.S. Minerals Management Service said on October 17th that 66% of the U.S. oil production and 55% of natural gas production in the Gulf of Mexico is still shut in from the last storm.

One cannot but be impressed, or depressed as the case may be, with the continued rise of precious metals. Old timers and students of economic history know the implications of such movements. Gold sold near $260 in early 2001; it is near $475 now. Silver was near $4.00 in late 2001; it is now near $7.75. Platinum was near $425 in late 2001, and is now near $940. Lessons are repeated until learned.

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