By: Asha_Bangalore
The turmoil in the Middle East and North Africa has led to higher oil prices (see Chart 1, data plotted up to 3/1/2011). Brent crude oil was trading at $116.99 ($113.07 on 3/1/2011) as of this writing and West Texas Crude was quoted at $101.68 ($99.63 on 3/1/2011). The Libyan crisis has raised oil prices significantly in the last three trading days. The crisis in the region commenced the day after a Tunisian man set fire to himself on January 21, 2011.
However, equity prices have moved up since January 1 in the entire world, with the Dow Jones World ex-US index up 3.2% year-to-date. Brazil and India have not joined the equity market party, but equity prices in Australia, U.S., China, France, Germany, Japan, and UK have posted year-to-date gains since December 31, 2011 (see Table 1 and Chart 2).
In the case of the U.S, equity and oil prices have a strong positive correlation (see Chart 3). Oil prices, for now, are a high relative price, with contained overall inflation in the U.S. The Fed is watching closely to apply the monetary policy brake, if signs of higher energy prices seeping into prices of others consumer goods and services emerge.
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