Is inflation relief on the way?
A slide in all manner of raw-materials prices—corn, wheat, copper and more—is stirring hopes that a significant source of inflationary pressure might be starting to ease.
Natural-gas prices shot up more than 60% before falling back to close the quarter 3.9% lower. U.S. crude slipped from highs above $120 a barrel to end around $106. Wheat, corn and soybeans all wound up cheaper than they were at the end of March. Cotton unraveled, losing more than a third of its price since early May. Benchmark prices for building materials copper and lumber dropped 22% and 31%, respectively, while a basket of industrial metals that trade in London had its worst quarter since the 2008 financial crisis.
Many raw materials remain historically high-price, to be sure. And there are matters of supply and demand behind the declines, from a fire at a Texas gas-export terminal to better crop-growing weather. Yet some investors are starting to view the reversals as a sign that the Federal Reserve’s efforts to slow the economy are reducing demand.
“Moderating commodity prices are clear evidence that inflation is cooling,” said Louis Navellier, chief investment officer at Reno, Nev., money manager Navellier & Associates.
Traders and analysts say that some of the decline in commodity prices can be traced to the retreat of investors who piled into markets for fuel, metals and crops to hedge against inflation. JPMorgan Chase & Co. commodity strategist Tracey Allen said about $15 billion moved out of commodity futures markets during the week ended June 24. It was the fourth straight week of outflows and brought to about $125 billion the total that has been pulled from commodities this year, a seasonal record that tops even the exodus in 2020 as economies closed.
“I don’t know if the policies of the Fed have slowed the economy, but that’s what money managers are betting on,” said Craig Turner, commodities broker at StoneX Group Inc.
Much of the climb in prices was due to supply constraints following pandemic lockdowns, weather events last year that reduced harvests and sapped fuel reserves, and war in Europe. Those pressures have eased, though supply shocks are still jolting prices.
Unfortunately, I doubt this will have much effect on the election in the fall. It takes months for people to recognize positive economic changes. But it’s good news in any case. The consequences of shutting down the whole world in 2020 will be felt for some time to come but they won’t last forever.