Throughout the 1900s, history has witnessed four significant commodity cycles, each with its unique context. Remarkably, three of these cycles occurred during periods characterized by inflation: the 1910s, the 1940s, and the 1970s. The fourth cycle unfolded in the early 2000s, coinciding with a momentous shift—the entry of China into the World Trade Organization. China’s rapid rise as the world’s manufacturing epicenter ignited an unprecedented construction boom, reshaping the global economic landscape.
Today, we find ourselves on the brink of an intriguing convergence of two powerful macroeconomic forces:
- The emergence of yet another long-term era of inflation, signaling persistent price pressures and economic challenges.
- A sweeping movement across G-7 economies to revamp their manufacturing sectors, seeking to reduce dependence on authoritarian regimes and strengthen their economic resilience.
This convergence sets the stage for a new commodity cycle, marked by its complexities and unique dynamics. Notably, the transition to “green” energy, driven by the increasing adoption of electric vehicles, presents a significant challenge. Electric vehicles, compared to conventional cars, rely far more on minerals and resources.
The central question becomes how to navigate this green energy transition without overwhelming our natural resources. This challenge underscores the critical need for innovation and sustainability within the metals and mining industry, which is poised to play a pivotal role in the global economy.
Adding another layer to this evolving landscape is the specter of inflation. According to CPI swaps, inflation is projected to average around 3% over the next nine months. This prediction aligns with a growing consensus that structural changes in the global economy are setting the stage for higher and more persistent inflation in the long term.
Renowned economist Nouriel Roubini even suggests that “structural changes” imply a future with significantly higher inflation levels. These factors collectively create a complex and urgent scenario, emphasizing the need for prudent and strategic decision-making to navigate the evolving economic terrain.
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Since the 1900s we had four notable commodity cycles.
Three of them occurred during inflationary periods:
1910s, 1940s, 1970s.
The fourth cycle took place in the early 2000s, coinciding with China's entry into the World Trade Organization and its emergence as the manufacturing… pic.twitter.com/IqQ9NwCqrZ
— Otavio (Tavi) Costa (@TaviCosta) September 20, 2023
Indeed:
Electric vehicles rely far more on minerals than do conventional cars.
Then, how do we achieve a “green” energy transition without creating a significant surge in demand for natural resources?
The metals and mining industry is yet to evolve into a crucial segment of… pic.twitter.com/KFGLlf564M
— Otavio (Tavi) Costa (@TaviCosta) September 19, 2023
According to #CPI swaps, inflation is going to average around 3% for the next 9 months pic.twitter.com/RYb43KpUp1
— Michael J. Kramer (@MichaelMOTTCM) September 20, 2023
Top Economist Says Lowering Inflation Is “Mission Impossible”
“Structural changes” to the global economy imply that inflation will be much higher for the longer term, Roubini said in a Monday interview on Bloomberg Television.