Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Commodity Price Inflation, What is Likely Impact in the United States?

Commodities / Inflation Nov 23, 2010 - 03:52 AM GMT

By: Asha_Bangalore

Commodities

Diamond Rated - Best Financial Markets Analysis ArticleThe S&P GSCI commodity index has moved up 11.3% from a year ago on November 19, 2010 (see Chart 1).  The trade weighted dollar declined 1.2% from a year ago as of November 12, 2010.  The immediate inference is that the extent of gains in the commodity price index is larger than the decline of the dollar.  By implication, commodity price gains reflect more than the depreciation of the greenback.  


An increase in world demand for commodities is the other factor responsible for higher commodity prices.  The world is operating on two different gears - advanced economies on first gear and emerging markets on a significantly higher gear.   The two-speed world would entail that commodity prices have a differential impact in advanced economies compared with emerging markets. 

In the emerging markets, the sharp increase in overall inflation, partly due to higher commodity prices, should involve policymakers being concerned about higher inflation.  China has already addressed the inflation issue with higher reserve requirements as inflation data show a troubling upward trend (see Chart 2).  Price controls on food items in China are being considered and it should not be surprising if it is announced soon.

By contrast, in the United States, the Fed is concerned about a "low inflation" environment with vigorous discussions of how to prevent a deflationary situation.  The Consumer Price Index (CPI) rose 0.2% in October, with the Labor Department indicating that higher gasoline prices accounted for 90% of the increase in the CPI.  On a year-to-year basis, the CPI moved 1.2% in October.  The core CPI, which excludes food and energy, held steady in October, matching the readings of the prior two months.  The core CPI has advanced 0.6% from a year ago, the lowest mark for the entire history of the index.  As shown in chart 3, both inflation measures show a contained inflation picture.  Other measures of inflation also indicate a decelerating trend of inflation (see chart 4). 


  
Commodities and services make up roughly 40% and 60% of the CPI, respectively.  Both indexes show a decelerating trend (see Chart 5).  The movements of the commodities price index is closely linked to the behavior of commodity prices. 


Rising commodity prices, such as food and energy items, translate into higher prices for these items at the retail level but contained prices of services have provided a partial offset and held back overall inflation.  In recent months, the commodity price index of the CPI shows a more moderate gain compared with readings earlier in the year.  In recent weeks, the S&P GSCI index appears to have peaked on November 10 (see Chart 6)

Speaking about overall inflation, the question is whether rising commodity prices will seep into the rest of the economy and result in higher overall inflation in the United States and call for tightening of monetary policy.  In the United States, inflation expectations have risen since Chairman Bernanke spoke on August 27 indicating the possibility of the second round of quantitative easing.  But the upward trend of inflation expectations remains non-threatening (see Chart 7). 

There is no immediate threat of inflation given the large excess capacity in the U.S. economy in terms of factory capacity and the high unemployment rate.  Also, actual real GDP of the U.S. economy is far short of potential GDP.  In addition, labor costs also show a downward trend.  Charts 8, 9, 10 and 11 illustrate these aspects of the current situation in the U.S. economy. So, the upshot is that rising commodity prices are not a harbinger of higher inflation, for now.   

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2010 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules