Nobel Laureate Economist, Prof. Milton Friedman, once said that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money (money supply) than in output.”
The World is facing a similar situation now.Most of the large economies adopted expansionary monetary policy to fight out the economic effect of COVID-19 led pandemic. Consequently, they increased money supply at a phenomenal pace and reduced policy interest rates to record low. Few major central banks (like US FED) also assured to follow the easy monetary policy for this year.
On the other hand, supply of commodities cannot be ramp up quickly given COVID related supply chain disruptions.
It is a state where a lot of money is chasing relatively limited metals/commodities in the global market. Consequently, their prices are increasing. The figure below compare the pace of increase in World Bank metal price index and money supply (OECD countries).
