Commodity crash signals disinflation is taking hold for now – by Carolynn Look and Enda Curran (Bloomberg News – May 31, 2023)

From copper to wheat to natural gas, the cost of some of the world’s most important products is crashing, bringing long-awaited relief for consumers that were stung by last year’s soaring prices.

The commodity crunch unleashed by Russia’s invasion of Ukraine has taken a sharp reversal, with a Bloomberg gauge dropping more than 10% since the start of the year to the lowest since 2021. Driving the disinflationary trend are a world economy flirting with recession, Europe’s industrial slump and China’s weaker-than-expected emergence from Covid Zero policies.

For households and businesses, the benefits are already starting to show up as headline inflation rates fall, taking some pressure off central banks to keep aggressively raising borrowing costs. Even so, some prices are proving more sticky, and there’s uncertainty over how long-lasting the disinflationary pressures will be, limiting the extent that this will ease the cost-of-living squeeze.

“The drop in commodity prices seems to reflect the stuttering rebound of China, a looming US recession and supply side destruction in Europe,” said Carsten Brzeski, global head of macro at ING. “It’s indeed possible that inflation could turn into temporary disinflation.”

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