Tags: paul | Krugman | Commodity | Surge | Sign | Inflation

Krugman: Commodity Surge Isn't a Sign of Inflation

Monday, 27 Dec 2010 10:31 AM

Commodities such as oil, copper and cotton are rising in price, but not thanks to U.S. monetary policy or to U.S. speculators, says economist and New York Times columnist Paul Krugman.

Global economic recovery is fueling the increase, as rising powers such as China demand more and more commodities to fuel their growing economies.

In fact, the United States has little to do with it, Krugman writes in his column.

"The big problem with those blaming the Fed for rising commodity prices is that they’re suffering from delusions of U.S. economic grandeur. For commodity prices are set globally, and what America does just isn’t that important a factor."

The increase, says Krugman, is due to economic fundamentals and it’s not a harbinger of runaway inflation just around the corner.

"As more and more people in formerly poor nations are entering the global middle class, they’re beginning to drive cars and eat meat, placing growing pressure on world oil and food supplies."

Some say the Federal Reserve is helping the spike in oil and other prices, saying its policy of quantitative easing — basically money printing — is creating excess money that has to go somewhere, commodities markets included.

China, meanwhile, recently raised interest rates to cool its hot economy, a move that should signal an ease in demand for commodities.

But markets are shrugging off the move, sending oil to a 26-month high after some initial volatility.

"This certainly doesn't spell the end of the commodities boom or the strong China story," Mark Pervan, senior commodities analyst at ANZ, tells Reuters.

"It's a smart move that may have caught the market off guard."

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Commodities such as oil, copper and cotton are rising in price, but not thanks to U.S. monetary policy or to U.S. speculators, says economist and New York Times columnist Paul Krugman. Global economic recovery is fueling the increase, as rising powers such as China demand...
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2010-31-27
 

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