SHORT NOTE ON INFLATION VIS A VIS COPPER PRICES

It is believed that if you want to track inflation, you should track copper prices. Historically, copper prices have proved to be a reliable indicator of inflation. The reason may not be hard to find. Copper is an excellent conductor of heat and electricity. Thus, it is perhaps used in the widest variety of consumer goods. It finds applications in goods ranging right from the basic plumbing materials to cars and super computers. Thus, if copper prices are rising, it would mean that an economic recovery is underway and inflation is about to show up on the horizon. Copper prices have been climbing steadily over the past few months. Recently, they broke into new highs of the current rally. Hence, does this signify that a major inflationary environment could be upon us?

It is well known that the argument before we entered 2010 was whether we are staring at a deflation or an inflation caused by money printing by central banks. Barely a few days into 2010 and we are getting some sort of signals from the way copper prices are behaving. However, a short-term movement in copper prices could also be because of some other factors. Thus, we may have to wait for the trend to sustain itself for some more time. However, the buzz around rising inflation is getting hard to dismiss. In India too, investors seem to be warming up to commodity producing companies. Quite a few steelmakers have seen their prices spike in the past few trading sessions. Same is the case with producers of non-ferrous metals. Are we seeing sector leadership changing hands here? Well, only time will tell.