As Consumer Price Inflation Looms, Fed Chief Powell Whistles Past the Graveyard

Given the recent relentless money-pumping on the part of central banks like the Federal Reserve and the European Central Bank, almost all commodity prices are soaring to historical highs. A rundown is given by Chris Becker in the Australian blog MacroBusiness, accompanied by graphs for each product. “Iron ore is cracking through an 11-year high, about to spike through $200 spot prices. Crude oil is almost back to its pre-COVID highs, tripling in the process. Meanwhile copper has more than doubled since crashing below the $2 level at the start of the COVID pandemic. Other soft commodities are going ballistic, with lumber prices at record highs. And wheat also shooting higher.”

The Baltic Dry Index, which reflects average prices of dry bulk materials worldwide, is now reaching a “decades high”, since the Suez Canal was unblocked.

John Mothersole, pricing and purchasing research director of the IHS Markit Materials Price Index, is now forecasting consumer price inflation in the United States, as a result of surging commodity prices.

Asked about that perspective at a press conference on April 28, Federal Reserve Chairman Jerome Powell termed it a transitory phenomenon. “An episode of one-time price increases as the economy reopens is not the same thing as, and is not likely to lead to, persistently higher year-over-year inflation.” However, the Fed is acting to make such price increases permanent by continuing to pump liquidity in that feeds future bets in commodities. Thus, it will keep interest rates at the same near-zero level and maintain asset purchases of $120 billion a month.

In 2008, the Fed balance sheet was less than one trillion dollars. At the end of 2020 it had grown to 7,8 trillion, a growth of more than eight times. The same goes for the ECB, whose balance sheet grew from 1.5 trillion euros in mid2008 to 7.5 trillion euros as of April 2021. Central banks have no choice within the current system: either they keep printing money, unleashing hyperinflation sooner or later, or they close the tap, causing a chain-reaction collapse of the system. The only way out is to close down the financial casino once and for all.