Tuesday, April 27, 2010

The Wall Street Journal notes commodity inflation.

This article in the Wall Street Journal documents the blatant inflation that is sweeping around the world.

An unrelenting rise in the cost of raw materials—largely driven by mounting demand from Asia—is cutting corporate profits, hitting stocks and, in some cases, pushing up consumer prices.

One glaring example is the sky-rocketing cost of rubber, a major tire component, which has climbed nearly 74% this year after rising 92% in 2009. Industry analysts and some tire makers, including Goodyear Tire and Rubber Co., in Akron, Ohio, and Bridgestone Corp., in Tokyo, have warned investors about a potential hit to profits.

A similar concern faces firms that buy other rapidly rising raw materials. Palladium, which goes into car exhaust systems, is up nearly 39% this year, potentially boosting costs for U.S. car makers as they seek to emerge from their slump.

Lumber, a major cost for home builders, is up nearly 59%. Analysts at Raymond James lowered their ratings on three home builders last week, in part citing "surging lumber costs."

Iron-ore prices also are rising, while oil and copper prices have tacked on to last year's huge gains.

Data on producer prices released by the Bureau of Labor Statistics on Thursday shows how rapidly the pressure on corporate America is mounting. The producer-price index showed that crude goods such as iron ore, construction sand and pulp shot up 44.5% year-over-year, the fastest rate since 1974. Including energy and food costs, crude goods prices rose 33.4%.


Rubber's rally is driven by booming demand in China, where car sales rose 56% in March compared to a year prior, according to IHS Global Insight, as well as elsewhere in Asia. ....Goodyear raised prices up to 8% on some tires last week, citing higher raw material costs, and rivals have done the same.


Meantime, home builders are facing rising costs, even as the industry tries to claw its way back from the housing slump. The gains in lumber prices have added about $2,400, or 1.1%, to the price of the median home, according to the National Association of Home Builders.

Listen closely tomorrow when Ben Bernanke says he sees no evidence of inflationary pressures. Americans need to store these statements very securely in their memory so that there will be accountability for what comes next.

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