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Fundamentals of Commodity Price Inflation

James Hamilton on commodity price inflation:

One challenge for either the monetary inflation or the speculative bubble view of the commodity price movements is the fact that there is such diversity, with some commodities going up a great deal and others not at all. Indeed, these differences across commodities are actually much bigger in magnitude than the average movements common to them all. Although not entirely discounting the potential role of monetary or speculative factors, I’m therefore inclined to try to interpret much of the relative price movements as resulting from the same factors that have always made commodity prices much more cyclically sensitive than other prices. Specifically, the long lead times in production and short-run demand and supply inelasticity mean the price can be particularly sensitive to demand fluctuations. A broad increase in the level of economic activity can thus lead to a broad increase in the relative price of a particular group, though with huge differences across items reflecting the particular factors of supply and demand in each market.

Supply and demand determining prices?  Who would’ve thought?

posted on 17 May 2006 by skirchner in Economics

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Interesting editorial in the WSJ today regarding gold and the dollar.  Any thoughts?  Gold does seem to have moved quite a bit for it to be due solely to an increase in industrial demand.

Posted by cb  on  05/19  at  12:41 AM


I don’t buy their view of gold as some sort of canary-in-the-coal-mine for the USD, although it is a popular one that no doubt has some influence on the market price.  I find the view that Bernanke is somehow weak on inflation (and by extention, the USD) even stranger.

This is what I said previously:

http://www.institutional-economics.com/index.php/section/comments/what_does_the_gold_price_tell_us/

Posted by skirchner  on  05/19  at  02:53 PM



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