Just when you thought that commodity prices were correcting and the Asian economies were slowing down and inflation—according to today's FOMC release—was set to decline in coming months, I bring to your attention the fact that the CRB Livestock index (a subcomponent of the CRB Foodstuffs Index, which in turn is a major subcomponent of the CRB Spot Commodity Index) has been setting new all-time highs in the past week. This measure of livestock prices has soared 138% since March 2009. Are speculators hoarding hides, hogs, lard, steers, and tallow? Or is global demand robust and the dollar very weak? My money's on the latter.
The most interesting piece of the FOMC meeting was their prediction inflation would subside.
ReplyDeleteNot sure what gives them such confidence in their prognostications but when things do not turn out as such, it will get very interesting...
The core CPI for last 12 months is 1.5 percent.
ReplyDeleteCulling out a particular commodity and extending an analysis from that strikes me as cherry-picking.
How about natural gas prices? Oil prices? Unit labor costs? Real estate values? The stock market?
The Nasdaq still sells for one-half of its 1999 level. That is an inflationary boom? The S&P is still below 1999 levels.
Some commodities indices peaked in 2008, staged a rally in 2010 but not back to 2008 peaks, and now are falling again.
There are office buildings in downtown Los Angeles worth less today than in the mid-1980s.
Asset deflation, and low interest rates, yet budget deficits. We are the United States of Japan.
Milton Friedman said the way out is aggressive QE.
If you want to fight inflation, you should be happy right now. There is no inflation in Japan, and there will be deflation in the USA too.
The question is, is fighting inflation worth the price of a permanent bear market in non-bond assets and economic growth?
See Japan for the answer.
Benjamin is right. "The Economy" is not monolithic. Some sectors have inflation, some have deflation.
ReplyDeleteAbout the commodities, for some reason, we're not seeing higher meat prices at our local grocery store, e.g, chicken breasts $1.99 a pound.
BBQ Season.
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