Bernanke's finally worried about inflation!

Fed Chairman Bernanke said today that he was unconcerned by May's 0.5% raise in unemployment but worried that the big rise in crude oil prices "has added to the upside risks to inflation". Why did it take him so long to become concerned about the rise in commodity prices in general and crude oil in particular?

Before trying to answer that question, let's remember what has happened to oil recently. In mid January 2007, crude oil bottomed at $51.62. Last Friday it closed at $139.12 for a 170% gain in just 18 months! Since crude oil is necessary for so many parts of our economy (e.g., heating, transportation, plastics) the rise in its price acts like a giant brake on the economy - similar in effect to a large tax increase.

Some don't know that since the 70's the Fed has had to create short-term economic growth along with price stability. These two tasks are frequently in conflict with one another.

I think the reason Bernanke waited until now to speak about high-priced crude oil and inflation was because of the recent sub-prime economic weakness. But Bernanke's lowering of interest rates (making the dollar drop to historic lows) to help the financial sector is what powered crude oil so fast. Now the high price of crude is crippling growth. Let's see if Bernanke does something more about inflation than just talking about it.