The Big Fear: Demand Dies And The Commodities Spike Keeps Up

Bespoke Investment Group is wondering whether inflation fears are about to intensify given the recent spike in commodities prices shown in the latest ISM manufacturing index data.

BIG:

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. Along those lines, this month’s increase in the commodities survey to its highest level in over a year suggests that worries over inflation may begin to grow louder.

Perhaps they’re right, but if inflation is caused by economic growth, we won’t be concerned with it because if caused by strong growth then it’s a ‘good problem’ to have, since it’s a sign of economic activity.

Yet if demand growth falls and commodity prices keep rising, then we’ll be worried. But so far it price-rises for commodities seem to be demand-driven.

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