Red-hot commodity markets raises the spectre of inflation

Strong demand has sent commodity prices soaring, raising the prospect of rising inflation just one year after the world saw oil prices turn negative on the back of plummeting demand and anxiety over the outlook for the global economy. Chief Analysts at Danske Bank say a significant overheating is currently taking place in global manufacturing.

Man with yellow hat checking of a list.


As lockdown around the world last year restricted social and economic activity, DIY stores soon emerged as early winners. Barred from travelling and eating out, consumers found themselves with more money and more time on their hands, which they then exchanged for plans to improve their gardens and houses.

Simultaneously, demands for laptops, office chairs, head sets, communication equipment also soared as businesses scrambled to adapt to the realities and demands of remote working. 

One year on, price rises of microchips, metals, lumber and other commodities have reached dizzying levels according to several observers. 

“A significant overheating is taking place in global manufacturing. A massive demand for goods have triggered shortages of production inputs, elevated freight rates, long delivery times and a sharp increase in commodity prices”, writes Danske Bank’s macro-economic analysts in an analysis. 


As consumers have had limited ability to spend on services, they have chosen to increase spending on goods instead. At the same time, both the pandemic and the restrictions to curb it have led to a shortage of workers in many industries.

Jakob Ekholdt Christensen

Chief Analyst, Danske Bank



Stronger demand, weakened supply
According to Chief Analyst Jakob Ekholdt Christensen the sharp price increases are due to both strong demand and disrupted supply. 

“Powerful policy responses over the past year mean that most consumers have maintained their income levels while saving money on travelling and restaurants. American consumers have even seen a jump in disposable incomes. And as consumers have had limited ability to spend on services, they have chosen to increase spending on goods instead, particularly spending on electronics and Do-It-Yourself components”, says Jakob Ekholdt Christensen.

And at the same time, both the pandemic and the restrictions to curb it have led to a shortage of workers in many industries.   

“Labour supply shortages due to COVID have hit many industries as more people have been ill, quarantined or had to stay home to take care of children in lockdown. One example has been a decline in copper exports from Chile and Peru as the COVID pandemic led to fewer workers available and distancing restrictions in the mines”, says Jakob Ekholdt Christensen. 

Labour shortage and distancing restrictions have also contributed to congestion in ports and hampered the ability of crews to change ships adding to the challenges in container freight, he says. 



Fear of inflation

While spending is expected to shift back from goods to services as economies emerge from lockdowns, Danske Bank’s macro-economic analysts expect both bottlenecks in manufacturing as well as increased demand for goods to persist for some time. 

“We see few signs that the overheating will end soon. US stimulus is feeding strong demand for some time, savings are high and European goods consumption is now getting a new lift from the reopening of retail stores”, they write in their analysis on global manufacturing. This raises the risk of rising inflation that will eventually extend to consumers. 

“With commodity prices moving to higher levels than expected and also staying there for longer, the likelihood of the cost being passed on to consumers is going up. We see a clear risk of core goods inflation being pushed higher over the coming quarters. This is set to add to the current inflation scare in markets over the summer”, they write.