Thursday, March 3, 2011
These charts represent the two major components of the CRB Spot Commodity Index. They contain no oil or energy-related commodities—just basic inputs to a lot of manufacturing processes and very run-of-the-mill types of food. They are both rising strongly and are posting new all-time highs almost every day. As I've pointed out many times before, it cannot be a coincidence that almost all commodity prices began their current run (which was briefly interrupted by the financial crisis in 2008) in 2001, which also marked the beginnings of the Fed's Great Easing. That easing was followed shortly thereafter (Mar. '02) by a major dollar decline; since then the dollar has lost 25% of its value, and is now at an all-time low in inflation-adjusted terms against a large basket of trade-weighted currencies. Easy Fed, weak dollar, strong commodity prices: they all fit, and in that order. The natural consequence of this, if left unchecked for too long, will be rising inflation.
Posted by Scott Grannis at 10:36 AM