Between 2003 and 2008, the Amount of Speculative Money in Commodities Grew from $13 Billion to $317 Billion, an Increase of 2,300 Percent

We may never know for sure the combination of circumstances that brought on the energy crisis of 2008. But one factor was almost certainly the Commodity Futures Modernization Act of 2000, which allowed unprecedented levels of speculation in oil futures by investment banks and pension funds, bringing the familiar boom-bust cycle home to the gas pump. - Drill Now? Try Regulate Now., Wall Street Journal, April 7, 2010

And what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical-commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed. - Matt Taibbi, The Great American Bubble Machine, Rolling Stone, July 2, 2009

Wholesale Prices Rise on Higher Gas Costs

November 16, 2010

AP - Wholesale prices rose in October for the fourth straight month due to higher gas costs, but there was little sign of inflation as the cost of food, cars and computers all fell.

The Labor Department said Tuesday that the Producer Price Index rose 0.4 percent last month, the same increase as September and August. Wall Street analysts had expected a larger increase. The index is up by 4.3 percent in the past 12 months.

But excluding the volatile food and energy categories, the so-called core index fell by 0.6 percent, the most in more than four years. That decline was driven by falling prices for new cars and trucks.

The report, which measures prices pressures before they reach the consumer, showed that companies have little ability to pass on the higher costs they are paying for grains and other commodities. Food prices fell slightly, confounding economists' expectations that they would rise due to higher costs for corn, soybeans and sugar.

The drop in the core index was driven by lower prices for new cars and pickup trucks. Car prices fell by a seasonally adjusted 3 percent, the department said, and pickup truck prices fell by 4.3 percent. Both were the biggest drops in about four years.

The department incorporates the price impact of the new model cars that automakers introduce each year in the October index. New car prices rose last month, but by less than in previous years. Under the department's seasonal adjustment process, that translates into a lower price.

Consumers responded by purchasing cars at the healthiest pace since the Cash for Clunkers program in August 2009. Sales at auto dealerships rose by 5 percent in October, the Commerce Department said Monday.

Grain prices rose last month, the department said, but food companies aren't yet passing on the price increases to consumers. Corn prices rose 22.7 percent and soybeans were up 10.9 percent. But beef and veal costs, which can rise when feed grains are more expensive, fell by 5.8 percent, the Labor Department said.

With unemployment high and the economy weak, retailers won't risk chasing away frugal shoppers by raising prices.

Gas prices rose by 9.8 percent, the most since January. The cost of diesel and home heating oil also rose.

With prices largely in check, the Federal Reserve said earlier this month that it will purchase $600 billion in government bonds over the next 8 months in an effort to lower longer-term interest rates. Some critics have charged that the program could push inflation higher.

When it announced the program, the Fed said "measures of underlying inflation are somewhat low" compared to levels it considers consistent with price stability.