The commodity index hit a new high during the year, posing a serious threat to Federal Reserve Chairman Powell's efforts to fight inflation.
Although the latest data shows that the US Consumer Price Index (CPI) growth slowdown in April gave both the Federal Reserve and the market a sigh of relief, the sharp rise in commodity prices may complicate anti-inflation prospects.
About a month ago, HSBC Global Research predicted that the commodities market would enter a “weak” bull market. This seems to have been proven.
The Bloomberg Commodity Spot Index (BCOM), which tracks 24 energy, metals, and agricultural contracts, rose nearly 1% on Wednesday to its highest level since April 2023, and the index has risen 8% since this year.
Financial blogger Zero Hedge points out that this poses a serious threat to Federal Reserve Chairman Powell's efforts to fight inflation. And the continued high inflation is due to the US Treasury spending as uncontrolled as during the “Great Depression,” spending about 1 trillion dollars every 100 days.
Looking at a longer time frame, the Bloomberg Commodity Spot Index has returned 50% of the total increase from the low point in early 2020 during the lockdown period imposed by the US government due to the COVID-19 pandemic to its highest point in mid-2022.
Today, the Bloomberg Commodity Spot Index is rising, while Brent crude, one of the largest components of the index, has also risen in recent months due to increased demand, tight supply, and ongoing conflict in the Middle East. Furthermore, copper prices have also hit new highs in more than two years, and cocoa and coffee prices have also risen sharply recently.
Sam Vogel, chief operating officer at Cayler Capital, recently stated: “Overall, the rise in commodities reflects still strong demand in the latter part of the economic cycle, but supply constraints are evident.” He said that in the oil market, commodity trading advisors expect “the balance between supply and demand in the second half of the year will be very strong.”
And when HSBC's Paul Bloxham and Jamie Culling asked customers last month, “Have commodity prices bottomed out?” Their answer was simple: “Seems very likely.”
The Bloomberg Commodity Spot Index is still 24% below its all-time high in May 2022. However, due to America's hidden stimulus measures (that is, the federal government spends $100 trillion every 100 days), this is likely to keep inflation and commodity prices high.
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