Bernanke and company’s continued insistence this week that the Fed’s uber-accommodative policy hasn’t played a role in driving up commodity prices continues to grate, and undermine the central banker’s credibility.
We’ve highlighted the extensive (and comprehensive) list of commodities with rising prices in ISM’s manufacturing survey, with few commodities reported as being in short supply. And no commodities — zilch — falling in price.
Well, no surprise, ISM’s February non-manufacturing survey out today shows essentially the same thing. Count 41 separate items listed as commodities up in price, while only three — cotton, cotton products and electrical components — are considered in short supply. Two commodities were down in price – computer supplies and janitorial services.
Perhaps there are some nuances to supply and demand, and their effect on commodity prices that Dr. Bernanke has uncovered to explain all this. I’m certainly not an expert, but I can read a chart, and just about every commodity I look at began rising right after the Fed chairman’s Jackson Hole QE2 warm-up speech in late August.
To illustrate this even better, let’s go back to ISM’s reports, pre-Jackson Hole. Take a glance at the August manufacturing survey. Just three — three commodities – up in price (caustic soda, copper and corrugated containers); three down in price (polyethylene, polypropylene and steel) and only one — capacitors — listed in short supply.
In the non-manufacturing August survey, there were 15 commodities up in price. By January, the number doubled to 30. Back in August, only coated groundwood was in short supply. Foods, like bacon, beef, butter and chicken — along with fuel-related items — made up most of the rising commodities.
The timing of the commodity run and QE2 is too perfect to be a coincidence, and the breadth of commodities involved in the move defies a simple tight supply-increased demand explanation.
So Mr. Chairman, please stop the charade. You’re not fooling anyone.
One other related item caught our eye today that hits at the heart of the scale and potency of the Fed’s loose policy. When you think of remote places, locations most likely to be insulated from outside influence, what comes to mind? Mongolia, perhaps?
From WSJ Online’s James T. Areddy, dateline Ulan Bator:
Surging inflation and interest in trading the nation’s currency, the togrog, are key challenges facing the Bank of Mongolia, a top central banker said Thursday.
The economic costs of inflation—’our biggest enemy’—are well understood by the central bank, said Deputy Gov. N. Zoljargal.
Areddy goes on to say:
The togrog was among the world’s strongest currencies in 2010, gaining as the economy rebounded from the global financial crisis and amid expectations copper and coal mining will sustain the trend.
The Mongolian central banker said monthly currency-market flows surged past $1 billion by August and hit $1.5 billion by year-end, vs about $400 million early in 2010.