Commodity prices near 18-year high on inflation risks

Brent crude has pushed back above $100 a barrel as traders price in the risk that conflict in the Middle East disrupts supply chains or exports. At the same time, gold has gained as investors seek havens from geopolitics and currency volatility, while copper is also firming on expectations that AI-related data centers, power grids and semiconductor buildouts will keep demand elevated.

The backdrop matters because commodity inflation feeds directly into consumer prices and producer costs with a lag, squeezing households and corporate profits even when broader demand is only moderate. The latest readings already show how persistent energy costs can keep inflation above target: euro-zone inflation rose to 3.3% in August, the highest in three years, while Germany’s rate climbed to 2.9%, reinforcing expectations that the European Central Bank will keep policy tight.

For investors, the risk is two-sided. Energy and metals producers stand to benefit from firmer prices, but airlines, manufacturers, chemical makers and consumer companies face higher input costs and potentially weaker margins. The move also complicates the outlook for rate cuts, because a commodity-led inflation rebound could force the Federal Reserve and other central banks to keep borrowing costs higher for longer.

The dollar is adding another layer to the story. A weaker greenback tends to lift dollar-priced commodities by making them cheaper for non-US buyers, while also underscoring fading confidence in the currency’s role as a safe haven. That has helped support gold purchases by central banks, which have accelerated since 2022.

The next catalyst is straightforward: traders will watch Middle East developments, US inflation data and central bank meetings for signs that the commodity surge is broadening into a more durable inflation problem.