Wednesday, September 22, 2010

Commodities on the Rise

There's one market that has pulled out of the recession into full recovery: commodities. Prices of commodities - and especially agricultural commodities - plunged with everything else at the onset of the recession, rose throughout 2008, then dropped again in 2009. But now in 2010, according to a new report from McKinsey, some commodities prices have actually doubled from those 2009 lows.

One result of these rising commodities prices is that the threat of deflation seems to be easing. A deflationary environment combined with our already-sluggish recovery would have been bad news for our economy. If the markets can stop worrying about deflation, that would be good for equity prices.

Of course, the flip side of that is inflationary concern. But the inflation rate has been remarkably stable lately, hovering just above 1 percent in each of the past three months. This economy still has more than its share of trouble; it would be nice if we are now able to dispense with deflationary worries before we turn back to concerns over inflation.

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