Given the recent positive price action of grains and moves by the Federal Reserve the possibility for commodity inflation has started to become a possible reality.
Inflation in it’s nature is quite simple as it’s a general increase in prices and fall in the purchasing value of money. Arlan Suderman, Stone X, explains that often fund managers try to hedge or protect themselves against inflation by purchasing commodities. In mid August the Federal Reserve for the first time in nearly a quarter century unveiled a plan that look to move the US away from monetary policy that kept inflation at around 2%. Given several years of low inflation the Federal Reserve is now ready to let inflation go past 2% for a while before reeling it back in, to offset the years of low inflation. This again is a check mark for the commodity bull that is wanting inflation to help raise prices.
The second important check mark for a commodity bull is available cash to be invested into commodities. That is currently at an all time high and sets at 5.413 trillion dollars. This readily available cash is known as the M1 Money supply.
However Suderman is still cautious to say we could see strong commodity inflation like that of the early 2000s through 2013. That type of strong inflation tends to be more cyclical and Suderman has personally only seen it twice in his life time.
Hear more from Arlan Suderman, on how M1 money supply and commodity inflation go together: