Friday, March 07, 2014

Inflation Steady : Commodity (Food) Prices etc. Skyrockets?

This is confusing - the taking heads and the feds all seem to say inflation is low but yet commodities are high and rising. If you have had the opportunity to go grocery shopping of late you will see how the price of food stuffs have risen out of sight.

And what of gas prices that rose to new highs and haven't receded all the while the demand for this commodity hasn't risen much if any. In fact the demand for gasoline has dropped and the demand for textiles seems to be flat, so why is inflation said to be still low? Or so 'they' say it's low.

Something doesn't seem logical when the "experts" proclaim inflation hasn't turn upwards over last several years, but when a customer goes through the check-out at the local grocery store with a loaded cart, and has a bill of $400 dollars or more, a person has the tendency to question the knowledge or motivation of our political and financial leaders.

Case in point, I witnessed a lady with two loaded carts go through the check-out and her bill came to more then $720 dollars. Now it doesn't take rocket science to know or understand this is not normal activity on the part of the general public when they are buying food. This is inflation of the worst kind, period!

Something doesn't pass the smell test here. Again in those famous words from Hillary Clinton, "to believe what you are saying, I have to have a suspension of disbelief".

Commodity Prices Follow Gold
Source: R. David Ranson, "Commodity Prices Follow Gold -- A Leading Indicator of Inflation," National Center for Policy Analysis, March 6, 2014.

March 6, 2014

Gold and industrial-metals prices are leading indicators of inflation, says R. David Ranson, a senior fellow with the National Center for Policy Analysis.

Changes in the prices of commodities -- goods that are uniform and widely-traded, such as metals or textiles or foodstuffs -- are generally attributed to higher or lower demand. But commodity prices are also determined by the value of the currency in which those prices are expressed, usually the U.S. dollar.

Looking at the long-run history of the dollar, Ranson analyzed the prices of various commodities over time.
  • Gold and industrial-metals are leading indicators of inflation.
  • The prices of industrial-metals (such as copper, aluminum, lead, nickel, steel scrap, tin and zinc) fluctuate widely, but they correlate with inflation. High commodity prices coincide with high inflation, as evidenced by the consumer price index (CPI). The CPI tends to rise more rapidly after industrial-metals prices rise, and vice versa.
  • Any major movement in gold prices is followed by a corresponding change in commodity prices over the next year or two.
  • Gold prices change more rapidly than industrial-metals and other commodities. For textiles, fibers, foodstuffs and crude oil, it takes a minimum of three years for the effects of gold price changes to be reflected in the prices of those commodity groups.
Ranson also looked at the relationship between real gross domestic product growth and changes in metal prices, finding that the relationship was purely cyclical. While growth has a short-term effect on metals prices, that effect does not last.

Since June, writes Ranson, the price of gold has been rebounding and metals prices have also begun to climb.
 

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