Inflation. The invisible specter that kills purchasing power and slowly ravages portfolios has been pretty non-existent since the end of the Great Recession. After the commodity bust and relatively slow global growth, prices for all matters of natural resources and their effect on what consumers/businesses pay have been muted.
That is, until recently. Thanks to rising demand and lower supplies, inflation has started to tick upward. That’s boosted the fortunes of many commodities producers as the so-called ‘reflation trade’ has commenced.
But investors might not want to get too excited. It turns out that the reflation trade might already be reverting to being just a dud. That will have grave consequences for investors going forward.
Inflation Gets Cooking
Much of the recent bump in inflation comes from a combination of factors. The biggest one is the mix of lower supplies meeting more demand.
Before the global recession, many emerging market nations like China had a voracious appetite for a vast variety of commodities. As a result, prices for many of these things surged to levels not seen before. In the face of those rising prices, producers of all stripes began mining, pumping and producing every drop of oil or copper they could. And then the bottom dropped out. It’s taken years to work through the oversupplies – mainly because growth across the planet has been lower than expected.
