and CRB is near a 20 year high As Oil Futures Set New Highs, Should Investors Start to Fear Inflation? Published: March 19, 2004 It is the forgotten economic problem, one that virtually everyone assumes is a problem of the past, not the present or future. Reports of surprisingly strong consumer and producer prices did not bother the stock market this week. Investors still remember that less than a couple of years ago it was deflation that seemed to be a threat. It may be premature to worry a lot about inflation. But the world economy appears to be very poorly prepared for it, if it does arrive. And that fact alone may be a reason to pay more attention to inflation than it is getting now. Consider oil prices. Investors have become used to the idea that there may be occasional price spikes, but that quotes will soon come down. A year ago, shortly before the Iraq war, spot crude peaked at $39.99 a barrel. But even then the market was forecasting $27 oil a year later. It is a year later, and the price for April delivery is about $38. While the market still thinks prices will fall, the one-year future traded above $32 this week, its highest price ever. Oil is not alone. The Reuters CRB index of 17 commodities is up about 20 percent over the last year and nearly 40 percent over the last two years. The last similar two-year move before this year came in 1977-79. Then everyone was terrified by inflation; now almost no one is. What people are worried about now is terrorism. Terrorists seem to hit economies that are already weak. In the United States, a recession had begun months before the Sept. 11 attack, although most economists did not know it at the time. European growth in 2004 was forecast to be the weakest among the world's regions even before the Madrid bombings. Ian Stewart of Merrill Lynch notes that only in Europe has the consensus growth forecast declined over the last year. Now, with Spain reeling and threats of attacks in Italy and France, a decline in tourism could end the fragile European recovery.
All the commodities are surging because of a weak dollar, but even if you take out the dollar effect especially metals and oil (agri products) are quite expensive. But what goes up must go D O W N