Commodity Price Inflation, Quantitative Easing II, and Corporate Profits

With the short corn crop in the US (compared to the USDA forecast) and the apparent second round of quantitative easing (QE II) by the Fed, I think there is a very good chance of commodity price inflation even though the underlying world economy is growing at a sluggish rate at best.

Increases in commodity prices will place profit pressure on a wide range of manufacturing firms because there is little if any ability to recover higher raw material costs from price increases on finished goods.

For industrial commodities like copper and energy, the QE II will also case increases in Dollar based pricing.

It is not clear if the Fed has taken these potential developments under full consideration when contemplating QE II. There has not been much written in the business press.

In summary, look for profit pressure across a wide range of industries because of commodity prices increases.