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2018 could see the return of commodity inflation

2018 could see the return of commodity inflation

As we come to the end of 2017, two primary industrial commodities are beginning to soar in price.¬† And this forecasts the so-called ‘missing inflation’ that central banks have been moaning about since they began their QE programs.

Image result for oil and copper industrial commodities

The first commodity expected to break much higher is that of oil.

Oil prices are likely to drift higher in 2018, Andy Lipow, President, Lipow Oil Associates told RT. Global demand continues to rise, as the economies around the world keep growing, he added.

An explosion hit Libya’s largest oil pipeline on Tuesday, causing a supply disruption. The blast is believed to have been triggered by a militant group.

It caused an instant spike in the global crude price up to $66 a barrel, the highest since mid-2015. The incident has reduced Libyan oil supplies by up to 100,000 barrels per day, according to the state-run National Oil Corporation (NOC). ‚ÄstRussia Today

And the second of these is copper, which has already skyrocketed higher following Congress’s passage of tax reform.

An already rising commodities market. To a large extent, this recent robustness is rooted in metals, and the metal to watch is copper. Despite some sharp dips here and there, copper prices have held up in 2017, with lows considerably higher than in 2016, prompting bullishness.

A bellwether with a respectable record, highly-versatile copper is used in manufacturing, industrial processes, electronic products and plumbing. Copper is so reliably foretelling of the overall commodities market that the traders have dubbed it Dr. Copper.

Rising interest rates and likely increases in inflation. Commodity prices are joined at the hip with interest rates and inflation, so if you fear getting hammered by the latter two, you might as well benefit from the first. The interest rate on the 10-year Treasury bill, now about 2.5 percent, has been rising, up from about 2.17 percent two years ago. If this rate continues to edge up, this could portend rising inflation from decreasing unemployment and upward wage pressure.

The recent congressional tax legislation. An aspect of this bill that has received scant news coverage is the five-year moratorium on rules requiring companies to depreciate capital expenditures over many years. For the next five years, companies can deduct the full cost of expenditures for plants and equipment in the tax year that they spend the money. This will give companies a strong incentive to invest in capital equipment, which funnels down to more demand for base metals and materials, causing this investment to exploit high global demand and accelerate profits. ‚ÄstABC News

The last time commodity prices in oil and copper were this high, the dollar tanked to around 72 on the index and global inflation helped lead to the Arab Spring riots.  So while the U.S. is forecasting growth next year of between 4-6%, higher prices in industrial commodities are not being seen as favorable to the economies of the rest of the world.

Kenneth Schortgen Jr is a writer for The Daily Economist, Secretsofthefed.com, Roguemoney.net, and Viral Liberty, and hosts the popular youtube podcast on Mondays, Wednesdays and Fridays. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.


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