Inflation Risk Is Still Low Despite Commodities, Says Rosenberg

Despite the steep rise in commodity prices, David Rosenberg says that the inflation risk is still low.

David Rosenberg, who was interviewed by Bloomberg on Tuesday, is Chief Economist & Strategist at Gluskin Sheff.

Rosenberg noted that there was a split between the inflation versus deflation camp. Commodities should be pushing inflation higher. Copper is up almost a $1 since the start of year. It recently closed at $3.81 a pound. Gold started the year at $1,200 oz and is now flirting with $1,400 an oz.

"Commodities are one part of the overall pricing picture," he says.

Rosenberg wonders if retailers and manufacturers will be able to pass these costs onto the consumers. The consumer is has been hard hit by the housing bubble and poor labour market.

"The other question is if you will see sustainability in terms of this commodity price appreciation," he says.

Elevated price levels can be fleeting. Rosenberg recalls the time at the start of 2008 when people were worried about inflation when oil was at $140. By the end of that year, oil had dropped all the way down to $40 a barrel.

"Six months later we were facing deflationary risk," he says.

Rosenberg notes that the underlying inflation rate is at its lowest level since the post World War II.

Inflation, he says, is ultimately about the intersection of the aggregate supply and aggregate demand curves. With unemployment at nearly 10% and labour still constituting the single biggest cost to all companies, inflation risks will be kept down.