Surging inflows into commodities trigger inflation warning: Global inflation may resurge within 6-9 months.

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While mainstream markets are celebrating the end of inflation, a group of investors known as "inflation traders" are sending a starkly different warning through the commodities markets.

The Federal Reserve unexpectedly cut interest rates early this morning, even though financial conditions have not tightened and the economy faces no immediate danger. This move, coupled with the continuous decline in U.S. Treasury yields and record-breaking stock markets, seems to paint a picture that inflation has been tamed.

However, the capital flows in the commodities market tell a very different story. According to Bloomberg macro strategist Simon White, commodity inflows have been rising steadily and accelerating for most of 2025, a pattern previously seen before the rapid inflation surges of 2020/21 and 2009. The current rise in metal prices is a warning that inflation may follow in the next 6-9 months.

Leading indicators of inflation are sending increasingly strong signals, indicating that price pressures are about to accelerate. If commodity investors are correct, they may reap rich rewards, just as the Bloomberg Commodity Index jumped 130% during the inflation surge from 2020-22.

Commodities Market: The Closest Barometer to Inflation

White states that, the commodities market is closer to the nature of inflation than other markets; rising raw material prices are usually a precursor to broader price increases.

Commodity inflation quickly permeates the manufacturing and industrial sectors, then pushes up input costs for upstream companies. Soon after, commodity prices rise broadly, creating wage pressures and driving up service prices. Historical data show that metal prices lead global CPI by about 6-9 months.

This year's rise in metal prices is precisely a warning signal that inflation is about to follow. Although oil has been the biggest drag on the commodity complex, with the market facing oversupply issues, stimulus policies in some countries may soon turn the tide for crude oil prices. Accelerating real money growth typically leads oil price growth by 3-6 months.

Commodity Indicators Sending Strong Signals

White says that commodity traders may make decisions based on their expectations of commodities, with inflation generally following suit. Multiple leading indicators of inflation are sending strong signals that price pressures are about to accelerate.

Inflation leading indicators, which aggregate manufacturing, monetary, and commodity data, have firmly remained above 2% in recent years and are now accelerating upward, with this indicator leading CPI by about 3-6 months. Other leading inflation indicators show the same trend, with freight prices rising and fertilizer prices increasing as well—the latter leads food CPI.

Most concerning for the Federal Reserve is that non-cyclical inflation is rising. This includes parts of core PCE that are least correlated with monetary policy, and thus most difficult for the Fed to control directly.

Although gold has attracted much attention recently, the rebound in commodity fund inflows is broad-based. Gold ETFs are among the largest commodity ETFs, and inflows have been rising. Even excluding gold and precious metals ETFs, the remaining data still clearly shows that commodity inflows are rising and the pace is accelerating.

Notably, U.S. gold ETF inflows have been surprisingly slow, especially considering the steady rise in gold prices, reflecting complacency about inflation in other parts of the market. The situation is similar in Europe; only in Asia do ETF buyers' enthusiasm for gold reveal concerns about inflation or financial stability.

Stock and Bond Markets Show Overconfidence

Overconfidence regarding inflation is also evident in the stock and bond markets. White notes that inflows into the largest U.S. stock and bond ETFs are at or near highs, with no sign of meaningful decline.

During the inflation-ravaged 1970s, the worst-performing major asset classes were stocks, corporate bonds, and U.S. Treasuries. Current inflows into stocks and bonds do not reflect market expectations of a similar period. Back then, after surging, inflation settled at a higher low, then accelerated again and hit new highs at the start of the next decade. Commodities were the only major asset class to deliver significant positive real returns in the 1970s.

Inflation-protected bonds (TIPS) were the only other major asset class in that decade with real returns above zero. Nowadays, inflows into inflation-protected bonds are rising, but the pace lacks signs of panic or anxiety.

Risk Warning and DisclaimerThe market involves risks, and investments need to be made cautiously. This article does not constitute individual investment advice and does not consider the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular situation. Invest accordingly at your own risk. ```