Chart of the Week: Inflation Across the Board in Commodities

Chart of the Week: Inflation Across the Board in Commodities

One of the biggest mistakes that  I personally have made as an investor over the past 18 months has been underestimating the power of the reflation trade.  While you probably know I’ve been a big time commodity bull since 2004 (and had a lot of success in agriculture especially), I “lost my way” after getting slammed in the 2008 crash.

Personally I expected another deflationary crash in 2010, and instead, we got exactly the opposite.  So it’s with a heavy heart (only because I’m not long my beloved ags) that I present you with this chart of commodity prices in 2010…

Chart of the Week: Inflation in the Real World

By Jake Weber, Editor, The Casey Report

As is often the case, there is a big difference between what the government statistics are reporting and what’s going on in the real world. According to the most recent inflation reading published by the Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate of just 1.1% in August.

The government has an incentive to distort CPI numbers, for reasons such as keeping the cost-of-living adjustment for Social Security payments low. While there’s no question that you may be able to get a good deal on a new car or a flat-screen TV today, how often are you really buying these things? When you look at the real costs of everyday life, prices have risen sharply over the last year. For simplicity’s sake, consider the cash market prices on some basic commodities.

individual commodity inflation 2010

(Click to enlarge)

On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October.

You probably aren’t buying new linens or shopping for copper piping at the hardware store every day, but I included these items to show the inflationary pressures on some other basic materials that will likely affect consumer prices down the road.

The jump in gold and silver prices illustrates that it’s not just supply and demand issues driving the precious metals higher – the decline in purchasing power of the dollar is also showing up in the price of physical goods. It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals – a trend that is now very much in motion.

[Jake is going to be digging deeper into the “secret” inflation in the next edition of The Casey Report, which will be released just following the upcoming midterm elections. Sign up today and make the powerful trends now sweeping the global economy and investment markets work in your favor. Our 3-month, 100% satisfaction guarantee assures you’ll love the publication or get a full no-questions-asked refund. Details here.]

Ed. note: I am a Casey Research subscriber and affiliate.