Oil Pushes Up Manufacturers' Costs

LONDON (Reuters) - Manufacturers' raw material costs rose at their fastest monthly rate in more than a year in August, driven up by oil costs and resulting in the smallest year-on-year rate of decline since April.

But faced with ongoing recession, manufacturers were slower to pass on August's 2.2 percent monthly rise in input costs and only raised factory gate prices by 0.2 percent in the month, the same as July's pace of increase.

Manufacturers' input costs and output prices were higher than economists had forecast on both a monthly and an annual basis, in large part because of a hefty 9.4 percent monthly rise in crude oil inputs.

Factory gate prices were 0.4 percent lower year-on-year in August, compared to a 1.3 percent decline in the year to July, while input prices were 7.5 percent lower than August last year, much less than July's 12.2 percent annual decline.

http://www.nytimes.com/reuters/2009/09/11/business/business-uk-economy-britain-prices.html

Fucking hedgefunds!

Dave Cohen of APSO-USA had a fantastic article a short time ago describing this phenomenon in detail, but basically the main reason for the price increases in the midst of a severe global economic downturn comes from the decline in the value of the dollar. Since petroleum is priced in dollars on the global market, and each dollar is worth less (soon to be worth-less?), then it naturally takes more of them to purchase each unit of oil.

Speculative investment is certainly playing a role, but it is a symptom, not one of the main drivers.