Inflation and commodities boom?

We wrote earlier that the only solution out of the crisis is massive money creation by central banks. We don’t think this will bear too many inflationary risks, but some disagree and see a commodities boom as soon as the latter part of this year as a result..

Stimulus Cash to Spur Inflation, Commodity Rally: Chart of Day
By Millie Munshi

March 5 (Bloomberg) — U.S. government plans to spend more than $11.6 trillion to revive the economy are going to accelerate the pace of inflation and send raw-material prices surging, said Michael Pento, the chief economist at Delta Global Advisors who correctly predicted last year’s commodity collapse.

The CHART OF THE DAY shows expectations for U.S. inflation during the past two years have anticipated changes in commodity prices measured by the Reuters/Jefferies CRB Index. In May, the Reuters/University of Michigan survey of consumers’ expectations for five-year inflation climbed to the highest since 1995, and by July, the CRB index had surged to a record.

Inflation expectations tumbled in the second half of last year, and by December had reached the lowest since September 2002. During that period, the CRB had its biggest six-month decline since the index was created in the 1950s. Expectations for inflation have since rebounded, signalling commodities will climb, Pento said.

The government has created a massive increase in the monetary base, and it means we are entering a massive inflation cycle,” Pento said in a telephone interview from Holmdel, New Jersey. “Inflation will be intractable. All of these commodities will start to act as an alternative to currency and start to pick up. Gold should be the primary investment, and energy and base metals should be secondary.”

Gold may jump as much as 54 percent to between $1,250 and $1,400 an ounce by late 2009 or early 2010, Pento said. Copper will surge 77 percent to $3 a pound, he said.

Gold futures for April delivery closed at $906.70 an ounce yesterday on the Comex division of the New York Mercantile Exchange. Copper for May delivery closed at $1.694 a pound on the Comex.