Friday, November 12, 2010

Brett Arends: Is Sarah Palin Right About Inflation?

It's on its way
Brett Arends, who writes the Wall Street Journal's ROI (for Return on Investment) column, admits that when it comes to inflation, Gov. Palin may be about to look quite perceptive:
The more interesting question is about Ms. Palin's broader point: whether inflation is on its way.

If the commodity markets are right, it sure looks like it.


Wheat prices are now surging... They've risen 36% over the past 12 months.

And there are similar patterns across other agricultural and related commodities.

Coffee has risen more than 60% in the past year. Sugar's up by more than a half. Corn: 43%. Lumber's risen by a third. Cattle: 17%. Oats: 37%. Pork bellies are up by a fourth.

"Prices across the board are surging to their highest levels since the 2008 price spike," says Alex Bos, commodities analyst at Macquarie Securities. "We have an extremely bullish cotton market, and extremely bullish corn market and an increasingly bullish soybean market."


Don Carson, analyst at Susquehanna Financial, notes that the U.S. may actually be running low on wheat. Inventories, in relation to consumption, are near record lows, he says. And Alan Knuckman, market analyst at Agora Financial, says it's ominous that prices are hitting highs around harvest time, when supplies should be at their greatest. "That's very unusual," he says.

Meanwhile -- as Ms. Palin said -- the U.S. policy of debasing the dollar is driving up commodity prices in dollar terms, as it is driving up prices for other "real" assets, including precious metals.

There is a long-running debate among economists about what really causes inflation: higher costs (so-called "cost push") or just too much money. But right now you don't really have to choose: We have both.

Which is precisely the more important point the first woman to become both Alaska's governor and the Republican Party's vice presidential candidate was trying to make: the Obama Administration cannot just continue to print paper money and borrow from China to cover its backside, while driving the dollar down. The end result of such recklessness is inflation - the wrecking ball that crushes economic recovery.

- JP

1 comment:

  1. Brett says Sarah's wrong about food prices having already gone up. He obviously doesn't shop for groceries. He's dead wrong - food prices have risen quite a bit over the past six months. Sarah speaks sooth!