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Alexander Heil Illustrates the Intersection of Energy Markets and Inflation at Newark Summit

Aug 2, 2018
by Josh Anderson

NEWARK, NJ — Energy prices – specifically crude oil — is definitely a major part of any economic outlook. However it also impacts the economy in some surprising ways. Just ask Dr. Alexander Heil, Chief Economist in the Planning and Regional Development Department of the Port Authority of New York and New Jersey, who was the Keynote Speaker at CapRE’s upcoming 2018 Newark CRE Summit, where he gave a presentation titled “Morning Keynote Address: The Trump Economy, Newark Job Growth, and Impact of Regional Transportation.” A large part of that presentation honed in on how energy and inflation are much more aligned than most people would guess.

“In the near term the question is all about, how quickly is U.S. shale production going to come online? It’s already happening right now,” began Heil. “Some of that is going to determine how much prices may slide down again. And we’re way above what shale prices would have to be in order to make Shale production profitable, but I think that the United Stats may turn itself into the largest oil-producing country in the world. In just a number of a few years. And if you go back ten years ago, it’s an insane statement to think about.”

In other words, certainly, the Shale markets completely revolutionized the energy market. And Heil stressed how, overall, he is seeing that in the price trends. “And so a lot of that is going to happen moving forward. And that is going to affect consumer price inflation,” he predicted. Then he referred to a graphic on his prepared PowerPoint presentation (see below).

“So what I’m showing is that there is a correlation between crude prices, in red, and consumer inflation in this sort of light blue color,” he outlined. “And you can see pretty much a one to one correlation. So what we are seeing over the last few years, and this graph goes back to 2014, is a very tight fit between what happens in the energy markets and what we’re seeing in the consumer price inflation.”

Dr. Alexander Heil, Chief Economist, Planning and Regional Development Department, Port Authority of New York and New Jersey

“You can see how in 2015, when the energy prices collapsed, there was pretty much no inflation whatsoever in the economy,” he specified. “And since then, with energy prices having picked up, we’re seeing that same effect, that same trend, also found in consumer prices. For the labor market enthusiasts among you, you could also argue that some of the inflation is a product of wage gains. But really wage gains, while incomes overall have grown, it’s not significant enough to really put pressure on the CPI. The driving force here is really energy.”

Continue the New Jersey conversation. Check out our upcoming events. For more from Heil, check out previous CapRE Insider Reports:

Dr. Alexander Heil is the Chief Economist in the Planning and Regional Development Department of the Port Authority of New York and New Jersey. As Chief Economist, Dr. Heil provides strategic leadership on regional economic issues to the agency. He is responsible for developing and managing the agency’s economic research and analysis agenda, helping to ensure that the agency’s major investment and policy decisions are informed by sound economic principles and analysis, and increasing awareness of the region as a unified economic entity by regional governmental, business, and civic leaders.

 

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