Oil will push U.S. inflation to 6%, CIBC’s Rubin forecasts

The last bastion against an all-encompassing surge in U.S. inflation is set to fall, Jeff Rubin, chief economist at CIBC World Markets, said Wednesday.

Wages are primed to jump as surging oil prices prompt the “triumphant return” of 1980s-style cost-of-living allowances (COLA), sending the U.S. inflation rate to 6% by 2009, Mr. Rubin said in another of his provocative forecasts.

The U.S. Federal Reserve will have to respond with 200 basis points of interest rate increases by the end of next year, he adds.

Mr. Rubin, who has basked in his bullish call on oil over the past few years, may be stretching his oil scenario too far, however, other analysts say. There is no way a U.S. economy on its knees from the housing and credit crunch will countenance aggressive wage gains: the story will be one of ongoing stagflation — high headline inflation and weak growth.

Financial Post