Welcome to Stagflation Nation

Yesterday on my blog I wrote a series of articles on inflation. The bottom line is the inflation picture is not that good right now. This has incredibly important implications for Fed policy. If the Fed lowers rates too much they run the risk of stoking inflationary pressures. That means that on the flip side of the current economic mess we run the risk of having to increase rates too quickly to deal with inflation. That move will slowdown the then underway expansion.

In addition, we're in a period of declining purchasing power for the average consumer. Note that energy and food inflation are increasing. As the cost of necessities increases more and more people will have less and less money available after buying all of their monthly necessities.

As the information below indicates, inflation is a problem. And it is growing.

I've written this title a bunch over the last few months, largely in response to a story of a few commodities hitting new highs. However, I haven't looked at a ton of charts and compiled them into a master list. So here is that list.

First I went to Futures Trading Charts. Then I looked at their futures charts for agricultural and energy commodities. I found 18 charts that show major price moves. All of them are listed below.

If this were one commodity I would dismiss it as a commodity specific price disruption. However, we're looking at major league price spikes across the spectrum of goods. That's a huge deal and it indicates a fundamental development in the markets. I stand by my standard explanation 101: with India's and China's standard of living going up, it's only natural the demand curve gets moved to the right. That means increasing prices.

I eyeballed the gains, so they might be off by a few percentage points either way but you get the rough idea.

Aluminum

Copper

Platinum

Silver

Gold

Canola

Cocoa

Coffee

Corn

Oats

Rough Rice

Soybean Meal

Soybeans

Wheat

Brent Crude Oil

Heating Oil

Light Crude

Propane

Now for the final question. Here is a graph from Martin Capital of Productivity.

Are the gains on this chart enough to absorb all of the cost increases demonstrated in the charts above?

Finally, given what the charts above show (who are you gonna believe -- government statistics or your lyin' eyes?) is this really a good environment to start lowering rates?

From the WSJ:

China's consumer prices surged by 7.1% in January, exacerbating the dilemma for policymakers who face both weakening global growth and a domestic economy still at risk of overheating.

The acceleration in inflation, up from 6.5% in December, came after heavy snowstorms in late January froze power grids and shut down road and rail transportation across much of southern and central China. The severe shortages of daily necessities that followed helped push the monthly inflation reading to its highest level since September 1996. And the snow's impact on prices is likely to be felt further in coming months, as it killed farm animals and damaged crops across a large part of the country.

The continued price increases, which have been gaining speed since early 2007, make it more difficult for the government to stimulate the economy to counter the recent financial-market turmoil and economic slowdown in the U.S. and Europe. China's inflation is still confined almost entirely to food -- where prices rose 18.2% in January -- but officials are concerned those increases could feed into bigger price spirals that would be much more difficult to contain.

And then there is this:

China's producer prices rose last month at their fastest rate in more than three years, adding to the inflationary pressures confronting Beijing policy makers.

Producer prices rose 6.1% in January from the year earlier, data issued by the National Bureau of Statistics showed yesterday. The figure was up from 5.4% in December and was the highest since December 2004.

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