World commodity markets continue to fly into the stratosphere to the noise of the central banks’ printing presses, which have poured $ 10 trillion in money into the economy and continue to pump liquidity into the system at a rate of $ 200 billion a month.
At the end of last week, the Bloomberg Commodity Spot index added another 3.2% and updated its maximum since 2011.
This indicator, which tracks the prices of basic commodities – from energy and metals to food and timber – has skyrocketed 62% over the past 12 months, setting a record growth since January 1980.
Iron ore futures added more than 12% in a week and 128% in a year, breaking historical records at levels above $ 200 per ton.
Copper rose in price by 6.6% over the week and 102% over the year, for the first time in history reaching $ 10,776 per tonne.
Wood futures in Chicago gained another 12% over the week, pushing annual growth to nearly 400%.
Exchange prices for coffee jumped 11% over the week, while cotton rose 2.2%.
The FAO (Food and Agriculture Organization of the United Nations) price index for basic food has added 30.8% over the past year, showing a leap that the global economy has not experienced since 2011.
In 12 months, the price of grain increased by 26%, corn by 66%, sugar – by 60%, dairy products – by 24%, and vegetable oils – by half.
While the markets rally unseen in four decades, it is too early to talk about reaching a ceiling, Ivy Hambro, head of commodities investment at BlackRock, told Bloomberg TV: “Markets are testing upper bounds to see what the new price range will be.”
We can talk about the threat of a full-fledged “inflationary shock”, says Marko Kolanovic, chief strategist for global markets at JPMorgan.
“With still high unemployment and years of inflation lagging behind target, central banks are unlikely to tackle price rises, and this is fraught with an unpleasant surprise for managers who have played deflationary trends for most of their careers,” he says.
JPM advises investors to switch to value stocks while increasing investment in direct inflation hedges such as commodities.
Commodity markets are pushed up by a variety of factors: vaccine-driven rebound in global growth; transportation problems limiting supplies; weather disasters in key growth regions, as well as rising fears about inflation and speculative frenzy driving investment demand growth, lists Ole Hansen, head of commodity strategy at Saxo Bank.
“One of the biggest challenges to the current surge in global commodity prices is the impact of rising food prices on those populations and economies that can least afford it,” he adds.
Although the Fed continues to bend the official line that the acceleration of inflation is temporary, it will most likely have to change its disc by the end of the summer, says ING economist James Knightley.
At the annual central bank symposium in Jackson Hole in August, the Fed is likely to start preparing the markets to phase out QE programs, the expert said.