Hacker News Reader

Comment by nine_zeros | Hacker News Reader

> "I am once again asking for" a common sense explanation for how increasing interest rates will reduce the prices of retail food and gas.

It will not. The only way to reduce prices of oil/gas and fertilizers (for food) is to bring back the amount of oil/gas and ammonia that went offline due to Russia. There is no amount of digging anywhere in the world that will quickly replace this much lost natural resource.

What raising interest rates will do is cause less spending in all non-oil/gas goods and services. This means every other industry must expect a reduction in revenues because the average customer is going to be spending more on oil/gas and food.

In other words, the choices for companies are: be ok with reduced revenue or be ok with reducing prices.

The choices for individuals are: be ok with consuming less non-oil/gas/food things or sell assets to fund oil/gas/food things.

View on HN

Oil isn't a serious problem, neither is gasoline. The West can safely maintain the situation with Russia indefinitely.

Brent has been in the $90s for a while now. That's equivalent to $65-$70 from ten years ago, which also wasn't a problem then. It's very modestly elevated at present.

Natural gas may be a different matter, although the Europeans look like they can have that permanently solved over the next few years through diversification and greater energy conservation.

> Oil isn't a serious problem, neither is gasoline.

Isn't a serious problem, yet. That's because China is offline and EU is still purchasing oil from Russia.

If it wasn't a problem, Biden wouldn't tour Iran, Venezuela and Saudi Arabia to get their oil and wouldn't open the national reserve. Nations literally live and die by the oil.

You can't mention oil prices without mentioning the U.S. SPR (Strategic Petroleum Reserve) releases (around ~250M barrels released this year, around 1/3 of the total reserve):

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M...

Without those, the price of crude oil would likely be higher than it is at the moment (although hard to say how much higher). The fact that China is still pursuing a COVID-0 policy has also helped keep global demand depressed - but we can't rely on that indefinitely.

> The only way to reduce prices of oil/gas and fertilizers (for food) is to bring back the amount of oil/gas and ammonia that went offline due to Russia. There is no amount of digging anywhere in the world that will quickly replace this much lost natural resource.

At least this has a modicum of common sense to it.

As others have pointed out, oil prices fluctuate all the time though. So do food prices.

Gas can affect retail prices, because to me, common sense says, you use gas, not oil, to move food from wherever it is to the supermarket and into people's carts, back to their homes. And gas prices are not oil prices. And a lot of the price of many goods is, secretly, gas, because that is how the people get to where they work, how the goods that are otherwise useless without transportation get to where they're sold, etc.

> What raising interest rates will do is cause less spending in all non-oil/gas goods and services.

So what? The CPI, even the "core" CPI, is food and gas, or food and gas in disguise.

Even if you buy less clothing, a lot of the price of the clothes doesn't come from demand. It comes from the price of the gas used to move it from A to B and all the people involved moving it, and the price of the food to feed all the people who made it and sell it. Gas and food are hiding in all the inputs of clothes. There is a floor on the cost of clothes, it keeps rising, what exactly will increasing interest rates do to the rising (producer's) cost of clothes?

There is a floor to the cost of clothes. And at an extreme people will have to buy 2 t-shirts a year instead of 20. That means that tshirt producers will make less sales and go bust. The remaining few tshirt companies will bargain with all the suppliers to reduce their prices. Families will have to go back to hand me downs, wearing the same shoes and socks for years.

The reality is that as long as so much of oil/gas inflation exists and interest rates rise, something other things will HAVE to give. People will just have to be ok with a life of less abundance.

Reply on news.ycombinator.com