What Commodities Tell Us About Transitory Inflation

While some investors welcomed the dramatic increase in commodities prices so far this year, others saw them as a warning sign of real inflation coming to the United States and other markets. A foreboding opening to Wall Street Journal article from June 7th said, “The run-up in commodity prices is casting a cloud over the global economic recovery, slamming vulnerable businesses and households and adding to fears that inflation could become more persistent.” Commodity price increases alone weren’t the only factor fueling inflation worries, but they were an easy piece of data to point to and some noting a historic correlation between the two. 



But others argued that these price increases are transitory and are more indicative of a US economy beginning to re-open than a concern for long term inflation. In a Wednesday press conference, Fed Chairman Jerome Powell said, “You’ll see that the incoming data are consistent with the view that the prices that are driving that higher inflation are from categories that are being directly affected by the recovery from the pandemic and the reopening of the economy.” A recent survey of fund managers found that nearly three-quarters of them believe that inflation is transitory, further casting doubt on inflation panic.  

Lumber was the poster child for the inflation is here to stay camp, but Powell noted that the recent performance for the commodity supports the transitory camp, after seeing its price get cut (pun intended) nearly in half. Timber indeed.   

Is Lumber alone?  Not quite. We looked at the current price of each of the commodity futures we track compared to their 52-week highs. 18 of commodities are currently down more than 10% from their 52-week high.  

Is this data a correction? Or is the inflation narrative unravelling? We shall see. 

Futures Contract  % Off High  52W High Date 
Lumber (Jul ’21)  -46.86%  5/10/2021 
Platinum (Jul ’21)  -20.56%  2/16/2021 
Soybean Oil (Dec ’21)  -18.58%  6/8/2021 
Hard Red Wheat (Sep ’21)  -18.45%  5/7/2021 
Gold (Aug ’21)  -16.34%  8/7/2020 
Silver (Jul ’21)  -15.82%  8/7/2020 
Cheese Cash-Settled (Jul ’21)  -15.51%  5/12/2021 
Class III Milk (Jul ’21)  -15.49%  5/12/2021 
Palladium (Sep ’21)  -15.03%  5/5/2021 
Canola (Nov ’21)  -14.80%  6/7/2021 
Wheat (Sep ’21)  -14.56%  5/7/2021 
High Grade Copper (Jul ’21)  -13.21%  5/10/2021 
Orange Juice (Jul ’21)  -13.18%  6/22/2020 
Corn (Dec ’21)  -13.09%  5/7/2021 
Soybean (Nov ’21)  -11.84%  6/7/2021 
Soybean Meal (Dec ’21)  -11.11%  5/12/2021 
Cocoa (Sep ’21)  -10.91%  11/24/2020 
Rough Rice (Sep ’21)  -10.77%  5/5/2021 
Coffee (Sep ’21)  -9.81%  6/1/2021 
Spring Wheat (Sep ’21)  -9.46%  6/7/2021 
Lean Hogs (Aug ’21)  -9.44%  6/7/2021 
Sugar #11  -9.27%  2/22/2021 
Butter Cash-Settled (Sep ’21)  -9.27%  4/13/2021 
Pork Cutout (Jul ’21)  -7.87%  6/4/2021 
Sugar #11 (Oct ’21)  -7.68%  5/12/2021 
Oats (Dec ’21)  -6.99%  6/7/2021 
Cotton #2 (Dec ’21)  -5.23%  2/25/2021 
Natural Gas (Jul ’21)  -4.84%  6/15/2021 
Gasoline RBOB (Aug ’21)  -4.07%  6/9/2021 
ULSD NY Harbor (Jul ’21)  -3.52%  6/10/2021 
S&P GSCI (Jul ’21)  -2.83%  5/11/2021 
Crude Oil WTI (Jul ’21)  -2.59%  6/16/2021 
Crude Oil Brent (F) (Aug ’21)  -2.28%  6/16/2021 
Feeder Cattle (Aug ’21)  -1.60%  4/8/2021 
Live Cattle (Aug ’21)  -1.05%  6/16/2021 
US $ Index (from low)  2.85%  1/6/2021 


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