For central banks, this is mixed news. It suggests that inflation may be beaten even though they have only just begun tightening monetary policy. True, this might be accompanied by a recession, but, because inflation would be tamed without interest rates having to rise too much, the downturn would, perhaps, at least be shallow.
Worries about the economy are not the only force pushing down prices. Much of the money that has fled commodities, say industry experts, belongs not to physical traders but to financial punters. In the week to July 1st about $16bn flowed out of commodity-futures markets, bringing the total for the year so far to a record $145bn, according to JPMorgan Chase, a bank. In part that reflects rising interest rates. In May America’s long-dated real rates turned positive for the first time since 2020. That made commodities, which do not offer a yield, less attractive to speculators.
This suggests that commodity-price inflation may not have been slayed. Movements driven by real-rate swings are usually short-lived, says Tom Price of Liberum, an investment bank. The last time one happened, in 2013, prices stabilised within weeks. Prices are also still sensitive to further supply disruptions. Commodity stocks remain 19% below historical average at a time of tight production, meaning there is less of a buffer against shocks.
Even as some supply problems have eased, triggers for others abound. Energy prices are still vulnerable to Vladimir Putin’s whims. Pricey energy, in turn, would cause metals producers to trim output further, making production tighter still. And the return of La Niña, a harsh climate pattern, for the third consecutive year could disrupt grain harvests worldwide. Prices, in other words, might stay high even if recession hits. ■