Commodity Prices Signaling Inflation

One of the knocks against the Austrian critique of recent monetary policy is that inflation has not erupted as predicted. Paul Krugman just made this point in another fine example of the derisive rhetorical style that he has honed since becoming a regular columnist at The New York Times.

But price movements across a number of commodities are pointing to inflation. To begin with, there is gold, the classic inflation hedge, which we have mentioned before in this blog. Currently trading at $1410 per ounce (all prices here in US$), it is only slightly below its all-time high reached earlier this month. Similarly with gold’s cheaper cousin, silver, which is now at $30.51 per ounce.

Outside the precious metals complex, copper has just breached its 2008 highs established during the last commodity price boom. Crude oil prices recently broke out of a sideways pattern to trade above $90 per barrel.  

Grain prices — including those for corn, soybeans, wheat, and oats — have been accelerating over the last several months towards their 2008 peaks. Cotton prices have been traversing record levels for weeks now. Sugar prices are breaching 30 year highs, while coffee is at 13 year highs.

To corroborate the inflationary portent of these trends, we’ll need to see the yields on US Treasury bonds spike up. Over the last two months, these have surged by 100 basis points (1 %) to 3.4%. A move above 4% would greatly strengthen our inflation story.

One Response to “Commodity Prices Signaling Inflation”

  1. MCX tips says:

    I like your post, it is very true about the market. There is no doubt that market is running in an alarming situation, but there are investors who survived and earning in this situation too.

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