FX168 Financial News (North America) Timber is one of the best performing commodities this year, and many people see its price rise as a sign of accelerating inflation. But the recent sharp fall in timber prices, erasing all gains so far this year, could be a sign that deflation is a risk that investors need to pay attention to, according to Bloomberg Intelligence on Tuesday.
"Timber may indicate that deflation is a greater risk," said Mike McGlone, senior commodity strategist at Bloomberg Intelligence.
McGlone has studied the history of wood value and consumer prices for more than 20 years, and the analysis points out that wood futures will fall further.
"this pandemic is more likely to mark an anomaly in long-term relationships, which we think should be normalized. Wood prices have changed by nearly 20 per cent over the past 25 years, while CPI is about 75 per cent, indicating the deflationary force dominated by commodities. " He said. In March 2020, wood futures prices hovered at the same level as wood prices. Based on wood prices and history, the momentum of the pandemic is unlikely to continue. "
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Wood prices, which hit an all-time high in early May 2021, have risen more than 120 per cent this year, but have given up all their gains. At the time of this writing, wood for delivery in September fell 6.1 per cent on the day, trading at $669 per thousand board feet in CME Group Inc.
"with the rapid development of most commodity technologies, free market capitalism and the rules of supply and demand are likely to become more and more important," McGlone said. There is an old saying that there is limited room for commodity prices to rise, mainly because of the elasticity of supply. This sentence may be more meaningful than ever before. "
After taking the market by surprise and raising inflation fears, the rise in timber prices seems to have come to an end.
"the initial demand shock from urban migration associated with epidemics may be shorter than the elasticity of wood supply," McGlone said. Trade restrictions and persistently depressed prices in the former Trump administration have led to a near-perfect surge in timber prices. But demand and supply economics should dominate, as can be seen from moderate prices and ample timber supply, which will push the price level back to the long-term trend. "
It's not just wood. Soybeans have also given up their 2021 gains, while copper is falling, McGlone added.
Even Federal Reserve Chairman Powell stressed the temporary surge in commodity prices such as timber, proving that inflation will be "temporary".
"the problem now is that demand is very strong and incomes are high," Mr Powell said in June. "if you look at the overall data, the forthcoming data are consistent with the view that the prices driving up inflation come from those categories that are directly affected by the recovery of the epidemic and the reopening of the economy."
Powell compared temporary inflation with a temporary surge in wood prices.
"over time, these tweetsQualcomm IncThe factor of swelling will be temporary. The experience of wood price is a clear proof. Prices that are rising rapidly due to shortages and bottlenecks should stop rising. It should go down in some cases. We do see this in the case of wood. "
Our expectation is that the high inflation data we are seeing now will begin to fall back. It's like wood. "
At the same time, the inflation figures are still hot. The latest US CPI data show that annual inflation was 5.4 per cent in June. The core index, which excludes volatile food and energy components, rose to 4.5 per cent from June 2020, the biggest increase since November 1991.
The June figure was much higher than the market expected, with an annual CPI of 4.9 per cent and a core CPI of 4 per cent.