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The Reformed Broker

The corporate hoarders

As the cost of raw commodities rises, some companies are starting to stockpile.

By Joshua M. BrownGuest blogger / February 3, 2011

Vikki Crosby of Jacksonville, Fla., sits with some supplies she stockpiled for her family in preparation for Y2K in this file photo. Now, businesses are stockpiling raw materials in anticipation of high prices to come.

Stuart Tannehill / AP / File

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"It just kind of clicked that I can borrow at 2.45%, and if cotton is going to go up between 10% and 12%, why wouldn't I do this?" Mr. Anton said. Cotton prices rose 92% last year, and are up 22% this year.

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The Wall Street Journal is blowing its arrival whistle. Companies from every segment of the business world are seeing the price of their raw cost commodities rise and in some cases are stockpiling to get ahead of the curve. This can become a self-fulfilling cycle to a certain extent, depending on how long it goes on for.

These pre-emptive purchases are a fraction of overall business activity, but the trend is being watched by economists and business executives. The stockpiling comes at a pivotal moment for the global economy, as central bankers scramble to judge the impact of raw-materials price increases and figure out whether or when to raise interest rates.

Purchases made more because of perceived inflationary pressures than a response to demand are important because they signal that inflation expectations are climbing. Economists often focus on inflation expectations, because they can spur people to speed up their purchases, in turn driving prices higher.

It's early but keep an eye on this. I've been talking about the potential for this, like, forever. I sure hope Bernanke is watching the CRB index.

Source: Companies Stock Up as Commodities Prices Rise (WSJ)

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