Why Commodities are Being Driven by Inflation and Supply Worries
by Jordan Roy-Byrne
The mainstream press loves to talk about emerging market demand as a cause of inflation, rising prices and the bull market in commodities.
Did emerging markets suddenly begin demanding food, energy and metals in 2001? What about five and ten years earlier? Its a rhetorical question. The conventional wisdom is wrong.
Inflation is driven by low interest rates and lax credit conditions. Severe inflation is driven by the inability to finance or grow out of debt.
Commodity bull markets are primarily driven by monetary factors. Secondarily, a lack of production eventually leads to much higher prices. Commodity industries are cyclical in the long-term. They go from periods of oversupply to periods of underproduction which then creates a lack of supply and a need for higher prices to stimulate new production.