The recent jump upward in commodity prices doesn’t preclude deflation, says Ambrose Evans-Pritchard, international business editor for the London Telegraph.
“Don't be fooled: a food and oil price spike is not and cannot be inflationary in those advanced industrial economies where the credit system remains broken, the broad money supply is contracting, and fiscal policy is tightening by design or default,” he wrote.
That includes the U.S., of course. The increase in commodity prices acts as a transfer tax to oil and food exporters, Evans-Pritchard maintains.
“It saps demand from the rest of the economy. If recovery is already losing steam in the U.S., Japan, Italy, and France, as the OECD's leading indicators suggest — or stalling altogether as some fear — the Eurasian wheat crisis will merely give them an extra shove over the edge.”
Wheat prices recently hit a two-year high, as Russia halted its exports amid a record-breaking drought.
Oil soared 6.5 percent in the week ended Aug. 3, as hedge funds bought on speculation.
Still, “The Reuters CRB commodity index is no higher now than in April,” Evans-Pritchard notes. “Last week's commodity scare looks like an anemic version of the blow-off seen in the summer of 2008.”
He’s not the only one concerned about deflation.
"Deflation isn't just a topic of intellectual curiosity, it's happening," Bill Gross, chief investment officer at Pimco, told The Wall Street Journal. “It's an uncertain world that's tipping toward deflation."
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