Commodity Indexes Hint Return of Inflation

By Nusbaum, David | Futures (Cedar Falls, IA), June 1993 | Go to article overview

Commodity Indexes Hint Return of Inflation


Nusbaum, David, Futures (Cedar Falls, IA)


Commodity prices have hit rock bottom. Do 1993's early gains represent a true turning point, or even (gasp) inflation?

People are starting to talk.

First, eyebrows raised when the Consumer and Producer Price Indexes (CPI and PPI) posted ostentatious gains in January and February. Next, the dependably moribund Commodity Research Bureau (CRB) Futures Price Index broke out of its trading range. Then, while the Goldman Sachs Commodity Index (GSCI) retained its composure, gold started a ruckus, reaching $350 an ounce.

Much ado about nothing? Federal Reserve Chairman Alan Greenspan said as much in April.

"The very steepness of the Treasury yield curve reflects deep-seated investor concerns that inflation will significantly quicken in the latter part of this decade," he said. "The recent firming in some materials prices has more to do with improving demand and the restoration of more normal levels of profit margins than to the early signals of sustained inflationary pressures."

But could it -- inflation -- come sooner rather than later? Have commodity prices truly bottomed, with nowhere left to go but up?

Being a bit of a contrarian, Trends in Futures Editor Glen Ring says he loves how "everybody tells us inflation is not a problem. What better way to have a two-tiered situation, where industrial inflation will stay down -- in other words, finished product inflation -- (while) raw inflation, raw inputs go up, and producers are caught in the middle?"

While consumers don't have the buying power to drive up prices, Ring says, commodity prices have hit a 12-year bottom and are due to rebound.

"204.50 is the major support now in the CRB," Ring says. "I believe that will hold. Now the key will be to bring the CRB back above 214 on a weekly close to confirm that long-term trend change is occurring."

If that happens, Ring says the CRB should rally for 12 to 18 months, possibly 24, and challenge 1988 highs (in the 272 area).

Jack Schwager, director of futures research at Prudential Securities says he's seen "more than enough evidence to assume we've seen a bottom (in the CRB)."

"My assumption is the downtrend in commodity prices that began in 1980 ended February 1993, until proven otherwise," Schwager says. "I would define (proven otherwise) as the CRB going below the 204 level for a week or longer."

Schwager cites six main reasons why commodities are becoming attractive:

1 Commodity prices have gone down in an economy that still witnesses inflation year-to-year. In inflation-adjusted terms, commodity prices are extraordinarily low.

2 Commodities, as an asset class, are extraordinarily low relative to other asset classes such as stocks and bonds.

3 Many indicators, like money supply or the strength of the dollar, are either neutral or pointing to higher inflation.

4 The CRB Index technically has hit a low -- "only slightly above the past 20-year low, virtually giving back the entire commodity price spiral we saw from 1977-80" -- held at support and turned up.

5 Many long-term commodity charts are near lows or at least near long-term ranges.

6 Individual charts, such as gold, are showing technical signs of bottoming.

While James Grant, editor of Grant's Interest Rate Observer, has no idea what price the CRB is going to hit, he thinks "it's going to be significantly higher."

"The stated international policy of the administration is devaluation," Grant says. "The stated domestic monetary policy is the expansion of bank credit. The stated fiscal policy is one of tax increases and increases in mandated costs to business. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Commodity Indexes Hint Return of Inflation
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.