Ok there is some inflation for sure in certain commodities like corn (due to the drought), but others (like soybeans) are at new lows ... so if there is inflation, it isn't the kind of inflation one would expect from what the above graph paints.
Or is it?
I believe that we are currently seeing inflation in the stock market itself, rather than in the real economy, because the virtual medium of the stock market is far easier, quicker, and more profitable to manipulate. This is the only reasonable explanation that I can come up with as to why the entire stock market hasn't blown up through the Euro crisis and continuing saga of the US debt problem. It makes little sense for the S&P500 to be flirting with multi-year highs right now given the mixed earnings reports last quarter. People somewhere are throwing buckets of money at stocks right now for no fundamental reason.
The deposits made by the federal reserve into accounts earmarked for the big banks has clearly not yet been tapped (as of July 2012) and in fact seems to just be growing. So, all of this talk of inflation in the mass media is really something we should be ignoring at this point, at least until something fundamental changes in the supply/demand picture for the US currency itself.
Specifically, when we see the currency in circulation start to catch up to the $1.5 trillion money supply, we will then know that inflation will finally be rearing its ugly head. But folks, there is no discernible way to figure out when the money supply will trickle down into circulation. So far, the banks holding it aren't releasing it.
What to do now?
In the meantime, I believe that the case for gold and silver is significantly strengthened, given that this time-bomb of money supply is just sitting there. Even if no one ever uses it, the more the fed increases the money supply, the more traders will assume that this must mean inflation is coming. It may well be that inflation like we are thinking doesn't come for a lot longer than any of us can stay solvent ... so caution is warranted when making investment decisions based on an 'inevitability' like inflation, even if the fundamentals for it are there.
Instead, we could make our decisions based on what the perception of the markets will be ... however this would greatly reduce our investment horizon. So what to do? I will keep watching these numbers to see if anything changes, but I think the flat currency circulation combined with a growing money supply, topped with an overly leveraged banking system and deteriorating economic conditions make gold and silver excellent investments for the protection of wealth over the short, medium and long terms.
