The Chairman of the Federal Reserve, Ben Bernanke, recently testified before a congressional committee that he thought any inflationary trend would be minor because the high unemployment rate is putting little pressure on wages. A recent communication from the Wells Fargo Advisors economists said essentially the same thing, but the Fed’s perspective is a far cry from the realities businesses are facing.
The problem with the Fed’s view is that it ignores materials-related inflationary pressures. Materials costs are escalating rapidly for many of my clients. Steel prices are going up, fuel costs are increasing and anything that uses petroleum as a base, e.g. plastics, is on the rise.
Recent floods in Queensland, Australia have inundated the coalmines that produce the lion’s share of coking coal for the steel industry in China, Japan and Korea. Drought has caused major crop failures in China, which is a key wheat producer. Cotton prices are going up. I recently spoke to a group of purchasing managers who all indicated that materials and supplies costs, such as pallets and plastic buckets, were rising quickly. Worldwide, prices on commodities are growing.
In matters of monetary policy, the government needs to look at more than just wage inflation. Materials costs are an important part of the equation and deserve observation and careful consideration.
© 2011 – Rick Pay – All Rights Reserved.