Power & Market

Commodities Rising

It must be a boom time for commodity traders. By any measure, whether in the news, on TV, or in stores, prices are increasing. Here’s some headlines, starting with Reuters on Sunday:

U.S. gasoline prices soar to highest since 2008 on Russia conflict -AAA

And today:

London nickel prices soared as much as 30.7% on Monday, their biggest daily percentage gain on record, as supply disruption fears gripped markets amid an escalating Russia-Ukraine conflict…

From the BBC also on Monday:

Oil jumped to $139 a barrel at one point, the highest level for almost 14 years…

And as the saying goes, make hay while the sun is shinning, certainly applies to wheat prices, per CNBC last week:

Wheat prices trade ‘limit up’ again, hit highest in nearly 14 years as Russia-Ukraine conflict continues

Imagine, prices went up so high in a day, that the regulator had to step in! As explained:

For a second consecutive day, wheat was at “limit up,” meaning it reached the highest amount the price of a commodity is allowed to increase in a single day.

These are just a few headlines, but it seems like everything is going up in price these days.

We’ve been told about stubbornly low (price) inflation for a few decades, often from central bankers who wanted the cost of living to increase for everyone. The Fed is notorious for claiming they control prices, which is true to a high degree because they can always debase the US dollar. But the Fed does not control all facets of prices.

In this instance of commodity prices, no one can say how much is attributed to Russia, US monetary policies, supply/demand, or countless other factors that determine prices.

Also keep in mind commodity prices didn’t just increase the past few weeks. There are many forces that brought commodities to new all-time highs, already in the works long before Russia ever crossed the border.

As for Powell, he appears committed to raising rates and reducing the balance sheet. He provided testimony to the House of US Representatives on Thursday, saying:

Reducing our balance sheet will commence after the process of raising interest rates has begun, and will proceed in a predictable manner primarily through adjustments to reinvestments.

So far, he’s still claiming everything is according to plan, speaking of the hardship due to price increases:

We understand that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials like food, housing, and transportation.

But with an annual salary of around $200k and an estimated net worth between $20-55 million, is it fair to ask just how much of an understanding of financial hardships he can possibly have?

If it helps, he remains hopeful that inflation will subside this year:

We continue to expect inflation to decline over the course of the year as supply constraints ease and demand moderates…

Until then, we can only wonder if prices have more to climb, or if Powell’s call turns out right.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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