Commodity Prices and Inflation: It’s Not China, but BlackRock

On June 11, the U.S. Bureau of Labor Statistics published data showing the highest inflation rate since 2008. The Consumer Price Index rose at an annual rate of 5% in May, up from 4.2% in April, reflecting a continuous rise of commodity and food prices driven by financial speculation. Global food prices rose for the 12th month in a row in May, up nearly 40% year over year. That’s according to the United Nations food price index. In fact, last month was the sharpest monthly rise in average food prices in over a decade, reaching nearly 5% just
from April to May.

But not to worry, central banks assure that this is “transitory” and in fact, neither the Federal Reserve nor the European Central Bank have changed their monetary policy. The ECB did, however, have to admit that three board members voted against it. Central banks claim that inflation is transitory because it is caused by a demand-and-offer gap, mostly due to the Chinese recovery which drains commodities on the global market.

The reality is different. The rally on the commodity markets, which has gone on for over a year and is not about to stop, has been fed by the enormous liquidities injected by those same central banks into the system. Commodity prices are determined by future contracts, 90% of which are traded by speculators.

“Hot money flows into commodity funds have reached unprecedented dimensions”, Bloomberg reported June 10. “Funds tracking specific sectors including energy, industrials and precious metals have long experienced hot money flows like this. Now demand for broad-based commodity funds is surging to an unprecedented degree this year amid the global economic re-opening, with $7.3 billion of allocations to take assets to $17 billion overall.”

Take the case of BlackRock: “Over six and a half years, a BlackRock Inc. commodity fund never came close to $1 billion in assets. Yet over two days in late May, the ETF more than doubled to $2 billion – and it’s already added another $120 million in June.” The raw materials “boom”, as Bloomberg put it, is allowing speculators (investors) to get rich fast at the expense of the people. This, however, can be stopped.

The proof is that when the Chinese authorities recently announced that they would closely watch the market to curb speculation, the very next day, commodity prices plunged on Chinese exchanges. US and UK authorities could do the same and crack down on the Chicago and London markets, but they know that if they do that, the financial bubble will burst and the financial system will collapse. Thus, central banks and governments are guaranteeing a life line to the Davos billionaires while preparing a very tough winter for families.