Canary in a Coal Mine: Stagflation.

The business logic behind hording is often going to be different from someone worried about difficulties ahead.  However, some of the factors driving these decisions are the same.  Let’s make a simplified casual chain: 

Something exasperates the world economic situation – government’s (the U.S. through the Fed) keep interests rates low to stimulate demand; money is cheap – the cheap money has limited productive areas to go; because of the availability of cheap money and the fear of cheap money leading to inflation, business and speculator buy commodities (gold, cotton, etc.)  For the “Something”, you may insert, financial bubbles, peak oil, food shortages, etc.

Now if we are in a normal situation, the last phase, buying commodities, is concurrent with an improving economy.  The rising cost of the commodities is all right because you are making money.  If it is not, if there is some brake on the economy, you get stagflation:  inflation with no economic expansion.

Companies contending with rising commodity prices are stockpiling rubber tires, cotton clothing and other goods, a maneuver that is aimed at insulating them from inflation but also could contribute to it…

Companies contending with rising commodity prices are stockpiling rubber tires, cotton clothing and other goods, a maneuver that is aimed at insulating them from inflation but also could contribute to it…

"It just kind of clicked that I can borrow at 2.45%, and if cotton is going to go up between 10% and 12%, why wouldn't I do this?" Mr. Anton [a t-shirt seller] said. Cotton prices rose 92% last year, and are up 22% this year…

Tracing those effects can be difficult. There have been instances when rising prices for raw materials and subsequent hoarding apparently contributed to higher inflation, such as in the 1970s in the aftermath of the Arab oil embargo, said Bank of America Merrill Lynch economist Ethan Harris.   from Liam Pleven and Matt Wirz, “Companies Stock Up as Commodities Prices Rise”, Wall Street Journal,  February 3, 2011 [paywall likely].