Despite what many observers have expected, inflation has remained quite tame.
However in 2013, that may be about to change. One factor that might cause a surge in inflation is the fiscal cliff.
But that’s only part of the inflationary story.
Central banks around the world are also expanding their money supply. China has become more expansive, the European Central Bank is buying bonds of the continent’s dodgier governments and Britain like the United States is monetizing nearly all the debt it creates to fund its budget deficit.
The big change in 2013 is now in Japan, where the new Abe government has told the Bank of Japan it wants much more buying of government bonds, to push the inflation rate up to 2%.
And just as Bernanke’s money creation increases inflation internationally, Japan’s new monetary push creation will likely increase inflation here in the United States.
In this case, the excess money creation will get transmitted to inflation mostly through commodity prices.