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Commodity Price Pass-Through Peaking?

By John S. McClenahen Could the inflationary story of rising commodity prices be over already? The shockingly high 0.5% increase in the March CPI suggests that it's not. But the economists at Merrill Lynch & Co., New York, have another take on the situation. "We do not expect a sustained run-up in inflation pressures." They note, among other things, that copper prices are declining. "Moreover, the principal source of the commodity inflation has originated in China, and the Central Bank there is already engaged in liquidity-draining initiatives to stem demand growth. [Simultaneously] the other great source of 'reflation' in the past two years -- the weakening U.S. dollar -- is reversing course." Asserts Merrill: "What is unique about this cycle is that the [commodity price] pass-through across the supply chain and through to the consumer has never been as tame as is the case currently."

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