The persistent rise in industrial metals prices is emerging as a potential threat to the US inflation outlook. With the recent rebound in oil prices, the transmission of tariff costs, and resilient economic growth, the convergence of multiple factors could drive upward pressure on the Consumer Price Index (CPI) in the coming months. An impending Supreme Court ruling on tariff issues further adds uncertainty to the short-term inflation trajectory. According to the Zhui Feng Trading Desk, Deutsche Bank analyst Markus Heider stated in a report published on the 15th that the metals market is experiencing a strong rally. The LMEX Industrial Metals Index has surged nearly 20% since last December, with a cumulative gain of 30% since September. This uptrend, which began last autumn, has clearly accelerated in recent weeks.
Inflation risks are accumulating. The Producer Price Index (PPI) report for November, released this week, already showed signs of accelerating core consumer goods inflation. Simultaneously, energy prices—which had previously served as a key offsetting factor—have recently halted their decline and begun to rise. Oil prices rebounded over the past week, eroding the buffer space on the cost side. For the US market, this risk is particularly pronounced. Tariff policies have already added pressure to costs in recent months. If oil prices remain at current levels and economic growth stays robust, rising metals prices will more clearly constitute an upside risk to US CPI.
Industrial Metals Prices Accelerate Upward Deutsche Bank argues that the industrial metals rally that began last autumn has recently gained further momentum. The performance of the LMEX Index shows that the market has recorded a gain of nearly 20% in just a few months since December, while the cumulative increase since September has reached 30% over a longer period. This price movement reflects changes in the supply and demand dynamics of the industrial metals market. A significant positive correlation exists between metals prices and inflation market valuations, a relationship built on two foundations. Firstly, base metals are a key driver of production costs; price increases are directly transmitted to manufacturing costs, subsequently influencing final consumer prices. Secondly, metals prices and inflation share some underlying driving factors. For instance, both typically perform well during periods of strong global economic growth; this common macroeconomic backdrop often causes them to fluctuate in sync. Multiple Cost Pressures Converge Deutsche Bank believes the accumulation of upside inflation risks stems from the combined effect of several factors. At the commodity level, energy price trends have undergone a significant shift. Previously declining energy prices had been an important factor offsetting other cost increases, but the rebound in oil prices over the past week has altered this situation. For the United States, cost-side pressures are more complex. Tariff policies have already increased cost pressures in recent months, a trend corroborated by the November PPI data released this week, which showed some acceleration in core consumer goods inflation. If oil prices stabilize at current levels while economic growth maintains its strong momentum, the rise in metals prices will more clearly manifest as an upside risk to US CPI. The Supreme Court is poised to issue a ruling on tariff issues related to the International Emergency Economic Powers Act (IEEPA), introducing downside risk to the short-term inflation path while also constituting an upside risk to short-term real yields. Deutsche Bank suggests that in the current environment, market strategy may favor paying short-term real yields and going long on medium-term CPI, for example, through a 2-year 1-year (2y1y) configuration. Once the Supreme Court rules, risks could again shift more noticeably to the upside.
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