- Higher costs for basic items like food, clothes and energy act as a tax on the lower and middle class. This will be a headwind to growth.
- The Chinese have an inflation problem, in large part stemming from the rise in commodity prices. Prices for goods coming out of China are rising rapidly. For years we have been importing deflation from China. If this continues we will be importing inflation.
- Eventually these price increases will show up in government statistics. At that point Ben Bernanke will haveto back off QE II and rates can potentially go a lot higher.
Commodities In Lock Step
The fact that commodities are moving higher in lock step with stocks will pose a problem for markets at some point. I view this as a problem for a number of reasons: