Gum rosin, commodity for inflation index?

By Javier Blas
Published: March 18 2010 20:41
 
Investors worry about a double-dip recession, high unemployment in Europe and the US, and rising sovereign default risk. But little attention is paid to inflationary menaces.
 
The Federal Reserve is encouraging the relaxed attitude. This week, it said: “With substantial resource slack continuing to restrain cost pressures ... inflation is likely to be subdued for some time.”
 
Take some important raw materials for the global economy, such as crude oil and iron ore. The price of crude is up 115 per cent since January 2009, with West Texas Intermediate, the benchmark, trading at nearly $85 a barrel. For perspective, the current price is the highest ever, barring the 12-month period between October 2007 and October 2008.
 
Spot iron ore prices have surged to more than $140 a tonne, up 95 per cent since January 2009 and the highest level to date, barring a brief period in 2008.
 
Some will blame speculators. But that appears off the mark. Julien Garran of UBS looks at the Commodity Research Bureau Rind index for signs of raw materials’ inflation, free of the interference of speculative activity. The index tracks some atypical commodities, including metal scrap, burlap, hides, tallow, gum rosin or wool tops, which reflect industrial demand, but are not traded in futures markets.
 
The index has risen more than 50 per cent since January 2009 and is now at the same level it was in mid-2008.
 
“The CRB Rind index suggests that the world is inflating,” says Mr Garran.
 
In emerging markets, driving the boom in commodities demand, consumer and industrial prices are on the rise, hitting 16-month highs. In time, the rise in raw material costs will come to developed economies – and with it, today’s forgotten inflation.