Commodity bubble has only just begun. Analysts are finding it difficult to separate speculators in commodities from users in the buying market with net long positions tending to be the rule. This suggests that buyers are comfortable enough, even if unwilling, at these prices.
Commodities tend to move in segments so it can be easy to look at a couple of highflying segments and forget that other areas might not be doing so well.
Regarding inflation I am personally of the opinion that we might need to adjust our target zones. The RBA goal is a 2-3% zone but this is really an arbitrary thing. It has served us well for 17+ years but circumstances have changed. In an environment where we have low unemployment, good company earnings, an historically supreme trading advantage perhaps a 3-4% inflation zone is appropriate?
Keep things bubbling along and let time reduce inflation when our trading position changes. But the powers that be, RBA and Govt, are firmly committed to the 2-3% target and risk triggering a worse than desired outcome with decelaration.
