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Crude oil hit a new post-recession high Friday. As the second chart shows (click on each to enlarge), in real terms oil is now back to the levels we saw in the early 1980s. Oil prices were shockingly high back then, having surged over the previous 10 years. Yet expensive oil didn't stop the economy from enjoying a boom, and the surge in exploration activity that followed the surge in oil prices soon brought forth a gusher of oil which in turn drove the price back down. Rising oil prices already have resulted in a 116% increase in the North American Rig Count since the middle of last year, according to Baker Hughes, so there are some interesting parallels between now and the early 1980s that are promising. The third chart compares real crude prices with the worldwide rig count, which hasn't risen quite as much as the N. American count; still, note how drilling activity responds to changes in real crude prices. It would be surprising if drilling and exploration activity didn't continue to rise given the current level of prices.

As a reminder, even though oil today is quite expensive in real terms from an historical perspective, there is reason to believe that it won't pose a serious obstacle to growth. Thanks to conservation and technological advances, the U.S. economy uses about half as much oil per unit of output as it did in 1980. As a result, consumers today spend about half as much of their income on energy as they did in 1980.

As the fourth chart shows, gold hit a new all-time high of just over $1400/oz. in nominal terms, but is still below its previous high (which was about $2250 on an intra-month basis).

I've shown this last chart several times before, but it's worth updating. What it shows is that gold has been a good leading indicator of non-energy industrial commodity prices, and it appears that the rally in both isn't over yet. Sooner or later the higher prices of gold, oil and commodity prices will find their way into the CPI (which is plagued by tons of inertia in the form of long-term labor contracts and leases) and we will see inflation rising. But by then it will be old news. You don't wait for the CPI to go up before you realize that inflation is rising; the CPI is the last place that the dollar's ongoing loss of value will show up.