Higher Energy Prices May Heat Up Inflation Rates

THE JOURNAL RECORD, October 23, 1996 | Go to article overview

Higher Energy Prices May Heat Up Inflation Rates


WASHINGTON (Bloomberg) -- This year's 42 percent rise in crude oil prices means millions of Americans will pay more to heat their homes this winter, and that could push the rate of inflation higher in coming months.

Even though some analysts say crude oil prices have peaked and may be heading down, consumers who are filling their tanks now in preparation for winter won't escape higher prices. Heating oil futures reached a 5 1/2 year high two weeks ago as traders anticipated refiners would pass on the higher prices they have had to pay for crude.

In Peabody, Mass., the 200 customers who buy their heating oil from Heat-Tech Oil Heat Service are already paying 5 percent to 10 percent more than they did at this time last year, said Maureen Reardon at the company. "It's only October, but prices have been going up instead of down," she said. Already, politicians have sounded the alarm about soaring heating costs. In response to pleas from Northeastern lawmakers, Energy Secretary Hazel O'Leary summoned oil company executives last week to discuss ways to ensure heating oil supplies are adequate this winter. They convinced O'Leary that oil inventories, though at their lowest level since the 1970s, were not low enough to justify selling oil from government stockpiles to hold prices down. Still, the meeting may have spurred action to increase heating oil supplies. Just Tuesday, for example, the Colonial Pipeline Co. said it's using spare capacity in a pipeline that usually carries gasoline to boost shipments of heating oil from Texas and Louisiana refineries to the Northeast. That sent the price of heating oil for November delivery down as much as 2.03 cents to 71.60 cents a gallon on the New York Mercantile exchange. That still leaves futures prices on the Nymex 50 percent above year-ago levels. Rising heating prices for Northeastern residents, who use most of the nation's heating oil, could also send up inflation gauges nationwide. "The consumer price index in the next six months will be up by as much as half a percentage point, as a result of the increases in energy costs that we're seeing right now," said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. Traders and economists estimate it takes anywhere between two to 12 months for higher crude oil prices to show up in the energy component of the consumer price index. So far this year, consumer prices have risen at annual rate of 3.2 percent, up from 2.7 percent for the first nine months of 1995. Tuesday, the Labor Department said a 5 percent jump in the price of imported petroleum last month pushed the prices businesses paid for imports up 0.8 percent. "Going into the new year, higher oil prices could start to spook the bond market," said Bill Sharp, an economist at Smith Barney Inc. …

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