Eoin Treacy's view
Inflation adjusted charts - The Chart Library has an extensive section devoted to inflation adjusted charts which takes an instrument's price and divides it by the US CPI Index for US denominated assets. While we do not have the ability to rebase scales to show current prices relative to peak prices, the shape of these charts is reflective of how prices have performed when adjusted for a common measure of inflation. They are at their most useful over a long timeframe, allowing us to see how today's prices compare with peaks reached during the last really big inflationary scare in the 1970s. Here are some examples.

The Inflation-adjusted chart for the Continuous Commodity Index deteriorated steadily from 1974 until 2003. It has trended higher over the last almost 8 years and a sustained move below the October 2008 lows would be required to question potential for continued upside.

Gold has trended steadily higher in inflation adjusted terms since 2001 and continues to set new recovery highs. While somewhat overextended in the short-term, a sustained break of the progression of higher reaction lows, currently near 5 on this chart, would be required to question the secular uptrend.

Silver formed a first step above it long-term inflation-adjusted base from 2006 and broke upwards in August. A sustained move back below 0.9 would now be required to question medium-term upside potential.

Corn, Soybeans, Wheat, Oats, Cocoa, Arabica Coffee, Sugar, Live Cattle, and Cotton are all in varying stages of base formation completion.

These charts do not tell us how high the respective commodities might rise in nominal terms over the coming years. However, they clearly illustrate that commodities were a successful hedge against inflationary pressures during the 1970s and are looking likely to provide the same type of haven in a future inflationary period.

The fact that so many commodities are breaking out of long-term bases in inflation adjusted terms suggests that it is now a matter of when rather than if this form of inflation will become again become a pressing issue for investors. This is in sharp contrast with the pronouncements of various central banks who continue to say that deflation is a more immediate risk. However, with the price of just about every essential raw material breaking upwards, it is inevitable that producer and consumer price measures will reflect these increases at some point. A number of Asian and Latin American countries are already feeling the effects of heightened inflationary pressures. In 2011, Europe and North America are potentially at risk from stagflation.