Posted inAT+

The Fed is the culprit in commodity inflation

Commodity prices and real world trade volume tend to move in lockstep. Something different happened during the past year, when non-fuel commodity prices rose much farther than the modest recovery in world trade volume would have indicated.

The discrepancy between a tepid recovery in trade (compared with the 2009 snapback) and an unprecedented jump in commodity prices can be put down to the Federal Reserve’s tsunami of a monetary stimulus and the US federal government’s never-before-seen-in-peacetime deficits.

Practically, that means we are facing prolonged, nasty and persistent inflation driven by monetary policy, rather than “transitory” inflation due to real economic factors.