The issue of commodity prices is a curious one; I’m getting a lot of correspondence along the lines of, “Well, which is it? Is it too much money printing, or is it greed?” But why does it have to be either of these? Why can’t it just be supply and demand?
What we’re seeing, after all, is a rise in the relative price of raw materials compared with other goods and services. This is what normally happens during a cyclical recovery, and there’s no obvious reason to see it as a sign of ominous inflation (unless you’re determined to see such signs).
What about speculation and market manipulation? Such things happen; long-time readers may remember that back in 2000-2001 I was pretty much all alone in arguing that the California electricity crisis was being caused by manipulation, not true shortages, an interpretation later confirmed by actual tapes of traders telling power plants to shut down. But I was and remain skeptical about the speculation story in 2007-2008, because of the lack of evidence of inventory accumulation; and this time around, the fact that prices are still well below that previous peak suggests that there can’t be all that much funny business involved.
Basically, this looks like rapid demand growth in emerging markets (though not here) colliding with limited supply. And it’s curious to see people on the right as well as the left seeing something dark and evil in supply and demand at work. - Paul Krugman
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