The credit crunch is a red herring. Everyone blames it for everything that goes wrong in the economy.

But a far simpler truth often gets lost in all the noise. We’re feeling poorer because we are poorer. And we’re poorer because the things we import — like food and oil — are getting much more expensive.

Oil sets a new record high practically every week these days. Last Friday it breached the $126 mark. It’s since fallen slightly, but Garry White explains below why those taking profits now are making a mistake.

High oil prices are damaging the British economy. They push up the price not just of petrol, but of heating, lighting, and any goods that have to be moved from one place to another. That’s pretty much everything you buy.

This inflationary effect is something that Bank of England Governor Mervyn King knows only too well.

Big Merv is stocking up on writing paper and feather quills. Why? Because Consumer Price Index (CPI) inflation for April was at 3.0%. A whisker higher and Merv will have to explain himself in an open letter to the Chancellor, just like he had to in March last year.

And there are signs that inflation will rise. Factory-gate inflation was 7.5% last month. This is yet to feed into the main, targeted figure.

The latest data are a blow to all those hoping for an interest rate cut in June. But it’s doubtful a cut would do much good anyway. It might temporarily mask Britain’s fundamental problem. But it won’t solve it. In fact, cutting rates will weaken the pound, making imports even more expensive.

That problem is that we must now pay more for our basic necessities. Oil is one of those. In real terms, we’re worse off. On the other side of the trade, oil-rich countries are better-off. Britain’s wealth is flowing abroad.

So what can you do about it? The answer is to divert some of that wealth back into your own pocket. There are several ways you can do this. We’ll be taking a look at some in the days and weeks ahead.

For today, I recommend you take a look at Garry’s Smart Commodities piece. With oil more valuable than at any time in history, Garry believes oil-exposure is a must for all investors.

High oil prices will continue to hit you in the pocket. But you can use oil profits to soften the blow.

NOT made in China

For years the west has spent a fortune on manufactured goods that are ‘Made in China’. But where do the Chinese turn when they themselves crave cheap manufactures?

Emerging markets expert Manraaj Singh believes he’s found the answer.

“Earlier in the decade was a great time to put your money in China,” he says. “We in the west couldn’t get enough of Chinese products.”

Thanks largely to this export market, China boomed. And China is still booming.

“China’s still a great place to put your money,” says Manraaj. “But I’ve found somewhere even better. A country where even Chinese manufacturers are setting up shop — because it’s just so cheap!”

Is this country about to take-off China-style? Manraaj reckons so — in fact, he says this investment is even better than China!

“Taking oil profits now is a huge mistake!”

“These oil traders must think China’s growth story is over!” says commodities guru Garry White.

The price of oil dipped by $2 yesterday, to around $123 a barrel. This was in part caused by China importing less oil last month than it had in April 2007.

But a quick look at the facts, says Garry, tells us why this is a temporary blip.

“A slight fall after a massive jump is not the same as a new trend,” he says. “Taking oil profits now is a huge mistake!”

Rising oil prices push up everything from heating bills to grocery prices. So what better way to hedge against this inflation than by investing in the stuff itself?

Find out which investment Garry believes is the very best way to play oil right now…

Until tomorrow,

Ben Traynor