How Much Should Commodity Price Inflation Scare Us?

More

If you drive a car, then you have probably noticed that gasoline prices have been ticking up. That's because oil prices have been rising recently. The prices for some type of food are also headed upward. Does this mean that Americans will soon see their purchasing power diminished as broader inflation enters the picture? It depends. Although energy and some food prices may put stress on descretionary spending, it's unclear if commodity price inflation will raise the prices of other goods and services as well. Michael S. Derby examines this question at Real Time Economics today:

Rising food, energy and raw material costs are problematic on several fronts. They can feed into core inflation and drive up underlying price trends. Commodity-based gains can also create drag on growth, because for many companies and firms, the cost of things like energy is unavoidable. Money spent there is money that can't be spent on other things, so the higher the cost of something like oil gets -- futures prices for Brent crude oil cracked $100 a barrel Monday -- the less spending power remains available for things like car purchases or home electronics, and so on.

The Federal Reserve isn't worried. First of all, it used its desire for higher inflation as an explicit reason for its recent quantitative easing initiative. Second, it cares more about core inflation -- which excludes food and energy -- than total inflation. So don't expect the commodities price increases we've noticed to cause the Fed to blink unless core inflation begins to grow more aggressively than central bankers anticipated.

Read the full story at Real Time Economics.

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

Is Technology Making Us Better Storytellers?

The minds behind House of Cards and The Moth weigh in.

Video

A Short Film That Skewers Hollywood

A studio executive concocts an animated blockbuster. Who cares about the story?

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Video

What Is a Sandwich?

We're overthinking sandwiches, so you don't have to.

Video

Let's Talk About Not Smoking

Why does smoking maintain its allure? James Hamblin seeks the wisdom of a cool person.

Writers

Up
Down

More in Business

Just In