Matt quotes Paul Krugman on commodities:

For one thing, I don’t expect growth in China to slow sharply anytime soon. That’s a big contrast with what happened in the 1970s, when growth in Japan and Europe, the emerging economies of the time, downshifted — and thereby took a lot of pressure off the world’s resources.

He then responds:

That doesn’t sound right to me. Surely the supply shocks from the commodities markets contributed to the slowdown in growth growth rates. Similarly, isn’t a big increase in basic commodities exactly the sort of thing we would expect to slow down growth in China?

Not exactly. During the earlier period, the causation went the other way. The rapid post-war catch up growth of the Golden Age was already coming to an end in Europe in the late 1960s, and that paved the way for the inflation of the 1970s. Productivity growth slowed dramatically, reducing the ability of European economies to absorb continued wage increases, and touching off rapid price growth. Inflation (and government responses to it) only exacerbated the ongoing slowdown.

China has a lot more catching up to do; its take-off began from a far lower point than that of Europe or Japan. China’s also growing at around 10 percent per year, a rate deemed too fast by the country’s own leaders. Expansion in China could slow considerably and still be greater than 4 percent–sufficient to place a lot of pressure on food and energy stocks.

And here’s the kicker: China’s inflation is largely due to the country’s failure to allow the yuan to appreciate. Were a steady appreciation to take place, however, China’s consumers would suddenly find themselves in a position to buy a lot of foreign goods. Chinese consumption demand would then goose production in Europe and America, providing support to commodities.

Krugman thinks, and I agree, that global demand is catching up to existing production technologies. Financial stuff can affect where and how price increases affect economies, but in general, real prices for these things are just going to head upward (barring improvements in efficiency or development of substitutes).