Commodities boosted to their highest in nearly a decade

Commodities surged to their highest in almost a decade as a recovery in the world’s largest economies stokes demand for metals, food, and energy. Meanwhile, poor weather harms crops, and transportation problems curb supplies.

The Bloomberg Commodity Spot Index, which tracks prices for 23 raw materials, boosted 0.8% Tuesday to its highest since 2011. The gauge has soared over 70% since hitting a four-year low in March of 2020.

Remarkably, some major economies emerging from the pandemic, therefore, metals are growing as manufacturing picks up. The return of motorists to the roads is increasing energy prices. Furthermore, crops like corn, wheat, and sugar have climbed as dryness hurts plants in Brazil, the U.S., and Europe, while China gobbles up supplies.

The boosting cost of raw materials increases the prices of everything, stoking fears of inflation around the world. According to U.S. Treasury Secretary Janet Yellen, interest rates may have to grow to ensure the economy doesn’t overheat. However, she later announced she wasn’t predicting rate rises and didn’t expect a bout of persistently higher inflation.

The U.S. and China are rebounding fast from the pandemic, stoking demand for more cars, electronics, and infrastructure. Ford Motor Co. anticipates a $2.5 billion impact from commodity costs in the last three quarters of the year.

Commodities may gain another 13.5% in six months

According to Goldman Sachs Group Inc., commodities may gain another 13.5% in six months, with oil hitting $80 a barrel and copper hitting $11,000 a ton. Moreover, Goldman reported that crude is anticipated to see the biggest-ever jump in demand over the next six months as the vaccination rollout encourages mobility.

According to analysts at JPMorgan Chase & Co., the world will start to rotate into services from goods as workers go back to offices, declining demand for metals to make home electronics and kitchen appliances.

Capital Economics claims that iron-ore, which recently hit a record, could pull back around 20% from current levels by year-end. Meanwhile, copper, which last month topped $10,000 a metric ton, will fall to nearly $8,250 in the fourth quarter.

IHS Markit Ltd. announced that the surge in commodity prices over the past year now guarantees higher goods price inflation this summer. During the next few months, even top-line consumer price inflation in countries like the United States will increase to rates not seen in almost ten years.