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Inflation And Commodities

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Inflation and Commodities : An important link between interest rates and currency values is commodity inflation, which, unlike an individual area or country’s business activity, affects all economies. As inflation rises and prices spiral upward, some people quickly start to buy up future supplies of basic necessities as insurance against higher prices in the future. In that scenario, prices go up not because of healthy business activity but because of uncertainty and fear—and fear moves markets. In that scenario the gov-ernment can increase the interest rate earned on cash deposits to get individuals to sell off their stockpiles of supplies in exchange for cash and the increased dividend created by higher interest rates. This seems a responsible action but does not work in all cases. Some individuals are inclined to hang on to their supplies rather than take the cash, and attempts at easing inflation can be thwarted.

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