What Does Stagflation Mean for Commodity Prices?

Commodities Shine in Uncertain Times

What a difference a quarter makes. The Federal Reserve rang in 2024 with a bout of optimism that inflation was coming down to their 2% target. But that optimism has now evaporated as the reality of stickier-than-expected inflation becomes more evident.

Fast forward a few months to the present day and the word on everyone’s lips is “Stagflation,” – the combination of below-trend growth and above-target inflation.

Following a string of U.S inflation reports during the first three months of 2024 – which all came in above estimates – concerns are beginning to mount that inflation could prove more difficult to conquer than previously thought.

On top of that, economic growth during the first quarter unexpectedly slowed, rising at an annualized pace of just 1.6% – the weakest pace of growth since the second quarter of 2022 when the economy contracted.

Put another way, that’s a steep slowdown following a 3.4% gain in the fourth quarter of 2023 and 4.9% in the quarter before that.

There are no prizes for guessing that Commodities tend to be the big winners in inflationary environments. Almost by definition, when inflation accelerates, so does the prices of Commodities.

That’s why it’s no surprise that Google searches of the term “Stagflation” have surged over 600% this month.

Which leads me to the big question: Is Stagflation coming or is it already here?

Only time will tell. However one thing we do know for certain is that savvy traders aren’t waiting around to find out.

According to data tracked by GSC Commodity Intelligence – traders have poured over $970 million into Commodities this month to hedge against a second wave of inflation, but even more importantly – capitalize on a treasure chest of opportunities brewing across the metals, energies and agricultural sectors.

OPEC’s Oil Production Decision: What’s at Stake

On the topic of inflation, Crude Oil is setting up to be the next big money-making opportunity that traders will not want to miss out on!

Expectations are running high that Saudi Arabia and its allies in OPEC+ will keep Oil production unchanged when ministers meet on June 1.

To quote analysts at GSC Commodity Intelligence – the global Oil markets is already on track to be “extremely tight” in the second half of 2024, with prices trading in the range between $92 and $100 a barrel if OPEC and its allies extend current Oil production cuts through the end of the year.

Overall, it’s no secret that OPEC group leader Saudi Arabia and co-group leader Russia both need Oil prices trading back above $100 a barrel.

The International Monetary Fund estimates, Saudi Arabia’s breakeven Oil price continues to climb higher due to Crown Prince Mohammed bin Salman’s unprecedented spending splurge on lavish on futuristic cities and top-flight sports players like Cristiano Ronaldo. Equally, Russia also requires bigger revenues as President Vladimir Putin continues to wage war on Ukraine.