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Is the commodities super-cycle still valid?

Today is Valentine’s Day. Chocolates, flowers, and fine dining often come to mind. The rise in food and other commodities continues to impact many consumers adversely.

The Consumer Price Index report came out earlier today. Inflation for January rose by 0.5%, following a 0.1% increase in December. The CPI was up 6.4% from a year ago in 2022. Both of the above numbers were higher than expected. Economists surveyed were projecting increases of 0.4% and 6.2%, respectively.

CPI year-over-year increase came from food, shelter, and energy prices. These components surprised investors as many believe inflation showed signs of subsiding over the past few months. Goods remained soft. But the super core services inflation, which excludes food, energy, and shelter, rose 0.2% for the month and was 4% higher than a year ago.

While commodity price increases may be easing, January’s numbers show inflationary forces remain an issue in an economy that is also showing signs of slipping into a recession later in the year. The strength of the core inflation suggests the Fed will continue to raise interest rates over the next two FOMC meetings in March and May from the current target range of 4.5%-4.75%.

Although economists and investors will continue to digest January’s CPI report and analyze other economic numbers, we recommend investors monitor the CRB Index for clues as to the directional trends of commodity prices.

We are interested in the long-term structural trends and, specifically, the potential for a commodities super-cycle. A commodities super-cycle is a relatively rare economic phenomenon. It is an economy that experiences an extended period of consistent and sustained commodity price increases lasting more than five years. Strong demand for raw materials, manufactured materials, and sharp rises in energy can trigger a spiral of higher commodity prices.

Financial markets are fluid and constantly changing. Questions regarding the direction of the longer-term structural trends in commodity prices remain unanswerable. Some of the questions are listed below.

If this is a commodities super-cycle, are we still in the early stages of a multi-year cycle?

Will the sanctions against Russia continue to impact the global commodities supply and demand equilibrium for many years?

Will the reopening of China from Covid-19 lockdowns trigger another sharp jump in commodity prices?

Will deglobalization and Decarbonization still lead to a commodities super-cycle?

Will the Fed and central bankers engineer a soft landing? And, if not, the potential for a hard landing (recession)?

How will this affect the potential for a commodities super-cycle?

Enclosed is a monthly chart of the CRB index and an in-depth analysis of the intermediate-to-longer-term trends of this critical asset class.


Source: Chart courtesy of StockCharts.com


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