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Because commodities are priced in U.S. dollars, a devaluation of the dollar causes commodity prices to rise. Business can choose to absorb this higher cost, or pass it on to consumers.
At least one company is passing them on, creating inflationary pressures on the economy. As we talk about a lot, inflation generally leads to higher mortgage rates.
This morning, Proctor & Gamble CFO Clayton Daley, Jr was on CNBC saying that higher commodity prices have forced P&G to raise its retail prices for consumer.
Commodities are basic "ingredients" that are produced by many different companies and are indistinguishable from one company to the next.
Commodities include:
Proctor & Gamble makes over 100 products and higher commodity prices is forcing its production costs higher. According to Clayton, therefore, P&G is raising consumer prices to help remain profitable. P&G is just one of many companies following this path, I am sure.
As the dollar continues to weaken, commodity prices should continue to rise, as should production costs for U.S. businesses. In the end, this creates inflation which further devalues the dollar and keeps the spiral twisting downward.
For homeowners, inflation devalues mortgage bonds which pushes mortgage rates higher.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator click to get a free, no-obligation rate quote.
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