Is Inflation Coming Back For Real This Time?

If we were to point to one mystery in our economy it is the lack of inflation.  Let it be known the Fed has been doing everything possible to stoke some inflation fans but it hasn't been working.  We have to go back to Ben Bernanke's reign as Fed chief to find where this effort first started, and even Janet Yellen seems frustrated about the lack of price increases in the economy.  Deflation is far scarier than inflation at this point - especially if the Fed's toolbox is nearly empty (there are always tools the Fed can use). 

We are not talking about the stock market per se, but certainly we have seen asset prices increase.  That was expected to happen in a low interest rate environment.  But what about the economy?  The Fed has been talking for years about how their efforts would eventually take hold - yet we still have rates as low as they have ever been.  Maybe now though we are seeing something occur - but let's wait until there is something real.

Inflation -- the chase of too many dollars for too few goods.  It's as simple as this, but many make it far too complicated.  There are many clues we can use to measure inflation -- a weak currency, strength in gold, prices increasing in commodities and at the consumer level.  To be sure, the Fed has been keeping rates low to get some inflation in the system.  They may even be willing to tolerate an overshoot of their 2% objective for a bit. 

Lately, some price action has been seen with higher gold, silver and other commodities.  This could be a result of higher demand, possibly from China.  Steel prices have started to firm up, aluminum as well as other metals such as platinum, nickel, zinc and alloys.  While it's a bit too early to say how these increased prices will be passed through, this is certainly a sign of higher prices ahead - perhaps this time around the Fed will get their wish. 

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