One after the other market indices and economic indicators are back at pre-Lehman levels. However, not all these represent good news, notably a component of the ISM Manufacturing Index dealing with the prices of commodities.
Survey respondents are asked which commodities are rising in price and which ones are declining, and this month indicated increases in 20 commodities and decreases in one (natural gas), for a net of 19. “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,” said Bespoke.
Improved economic activity is resulting in higher commodity prices starting to be passed on to consumers as businesses regain pricing power. Although some deflationary forces are still at play, I believe inflation will be on an upward trajectory over the next few years.
Source: Bespoke, May 3, 2010.
