In the midst of the pandemic, long before Russia invaded Ukraine and the price compass completely demagnetized, the recovery in commodities (energy and non-energy) was one of the first indicators that the long era of low inflation and negative interest rates was beginning to end to go. Consumption was still weak and salaries gave few alarm signals, but there were already the first voices asking central banks to expect a rise in the price of money that no one had previously envisaged.
Today, barely three years later, it is again raw materials that are ahead of the trend reversal in the European price indices. Since mid-September, the world's most important commodity indicator, the Bloomberg Commodity Index, has fallen by almost 10%. In a year and a half the decline is more than 25%. The major headache for households, governments and central banks has become the main driver of disinflation, with energy – and particularly oil and gas – at the forefront. And the one that suggests that the rate cut will come sooner and faster than ever expected: the latest CPI values in the main euro countries (France, Germany, Spain…) prove this.
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The reasons for this noticeable relaxation in prices for basic products are diverse, almost as diverse as there are raw materials: from better grain harvests in food power plants like Brazil to weak Asian demand to growing tensions in supply chains and sea transport. another major shortage in the worst days of last year.
When it comes to energy, the product group that has the most weight in the index is oil, which has around 16%; natural gas, 7%; Diesel and gasoline each over 2% – the slowdown has to do with both the normalization of the situation in view of the peak of the Russian crisis and the cooling of economic expectations in the wake of rising prices. price of money. A factor that also impacts the market for minerals and industrial metals, another important item in the basket, according to Ole Hansen, head of raw materials strategy at Danish bank Saxo Bank.
Commodity prices have always been one of the key ingredients in the inflation cocktail. However, recently its importance has more than multiplied. Especially because a geopolitics subject to the maelstrom has brought volatility to unknown levels. But also because in a highly globalized economy, what happens in a copper mine, in an oil well thousands of miles away, or at the headquarters of a major commodities trader affects the ability of families more than ever to make ends meet in large importing countries. A group in which both the European Union and Spain occupy a prominent position.
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“With a barrel of crude oil at around $80 or even lower, as it is now, inflation continues to be significantly reduced,” says María Romero, managing partner of economics at Analistas Financieros Internacionales (AFI), who recalls the impact of crude oil on the rest of the goods and services. “Moderation is happening faster than expected, both in energy and nutrition, which are two key elements. There are fewer and fewer costs putting pressure on the CPI.”
The price rally in metals, another key subgroup, is more a response to the relative weakness of China's economic cycle, with the once-powerful construction sector “asleep,” as Romero put it. “The lower demand makes them discouraged; And that helps a lot,” recalls the head of the economic department at AFI. Steel, an essential material in countless processes, has even reached the level of 2020, the year of the lockdown, in recent weeks. And iron and aluminum have lost almost half of their value compared to their peaks in summer 2021 and winter 2022, respectively.
gold at highs; the dollar, weaker
There are also two reasons why the actual decline in commodities is even larger than the Bloomberg index. The first is the high weight of gold, which is trading in a range of historical highs and – be careful – represents almost a fifth of selective gold, but whose real weight remains in household consumption: its use is limited to some segments. from industry and jewelry; Otherwise (and most importantly) it is a store of value for eternity.
The second is the exchange rate. The euro today exchanges for 1.08 dollars and has reached 1.1, a far cry from 1.05 just two months ago and, above all, light years from September 2022, when it lost parity for the first time in two decades. The dollar's importance for inflation is capital: with the exception of natural gas, virtually all of the raw materials that Europe imports are quoted in this currency. The stronger the currency of the North American country, the more expensive the import bill from Spain and the other neighboring countries will be. Another wind that favors a European disinflation that has only just begun.
“The environment has changed significantly in recent weeks and commodities are being impacted by the weak macroeconomic outlook and lack of OPEC+ coordination.” [el cartel petrolero]“Given the fact that energy requirements are not so high,” he explains on the phone. Francisco Quintana, Director of Investment Strategy at Dutch bank ING in Spain. “Inflation is falling so quickly that it is difficult for the Federal Reserve to justify not only new increases but also the narrative of higher interest rates for a longer period that has dominated it in recent months.” Your bet for 2024? A dollar that will continue to “ease” and commodities that will continue to show signs of weakness.
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