Commodities and inflation

Prices are going up because prices are going up. That seems to be the rationale for $100 oil and (almost) $1,000 gold. As the Federal Reserve pulls the rug from under the dollar in an effort to stave off recession, so investors are buying raw materials as a hedge against inflation.

There are some fundamental factors – supply bottlenecks, resource industry consolidation, Asian demand – underpinning commodities prices. But these cannot explain the recent surge. This is bad news for the Fed. Steep rises in commodities prices make a mockery of the distinction between core and headline inflation, effectively taxing consumers and businesses. Ben Bernanke, the Fed’s chairman, dismisses talk of stagflation.