The unwelcome return of inflation

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One after the other market indices and economic indicators are back at pre-Lehman levels. However, not all these represent good news, notably a component of the ISM Manufacturing Index dealing with the prices of commodities.

Survey respondents are asked which commodities are rising in price and which ones are declining, and this month indicated increases in 20 commodities and decreases in one (natural gas), for a net of 19.  “On a three-month average basis, the net number of commodities rising in price is now up to 17, which is the highest level since August 2008.  While no one is complaining about improved economic demand, one unwelcome by-product of the improved economic picture is rising prices,” said Bespoke.

Improved economic activity is resulting in higher commodity prices being passed on to consumers as businesses regain pricing power. Although some deflationary forces are still at play, I believe inflation will be on an upward trajectory over the next few years.

Source: Bespoke, May 3, 2010.

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2 comments to The unwelcome return of inflation

  • Justin

    If Ben Bernanke would lift interest rates no one would be in commodities and therefore the prices would drop. So much of the rise has been because of loose monetary policy and has nothing to do with supply and demand. So get off your inflationary horse. It’s deflation stupid.

  • @justin: Why will Bernake lift rates if the economy is not picking up? And why will commodities not benefit from that (i.e. pricing power again entering the equation), with still low interest rates, albeit edging up?

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