How will you cope with record high oil and record low dollar?

The Fed’s relentless policy of interest rate cuts is working like a charm. The dollar hit a record low against the Euro ($1.5057) and oil hit a record $102 in response — up 325% since January 2001’s $24. The record oil price has not yet found its way to the gasoline pumps — but it will. If oil prices remain above $100, by this summer gasoline prices will top $4 a gallon — or $80 for a 20-gallon tank. Back in January 2001, you would have paid about $1.59 a gallon — so you’ve got a 152% price increase there.

What is going on here? According to the New York Times, producer inflation is up 7.4% — the worst since 1981. The U.S. has pursued a weak dollar policy — relative to the Euro, the dollar has lost 63.7% of its value since January 2001 when it traded at 92 cents to the Euro. And since oil is denominated in dollars, a weaker dollar translates into a higher oil price. That excludes the effects of political instability in oil producing regions — Iraq and environs — and rising oil demand in China and India.

How are you coping with this? The Times reports that one person, Phyllis Berry, a 31-year-old factory worker who drives a beat-up Dodge Caravan, said, “I used to fill it up pretty regularly, but now I drive it until the tank is almost empty, looking for the cheapest place to buy gas.” She said that she used to take her four children to the movies four or five times a month. But with the cost of gas, tickets, popcorn and soda adding up to $70, they now go only once a month.

When the Fed’s Chair Ben Bernanke testifies today, he’ll likely dismiss inflation as a lesser concern than the credit crunch. Is he making the right choice? I don’t think so. How about you?


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