The commodities bubble begins to burst

Goldman’s commodity bubble-blowers are capitulating:

Macro markets today are facing a navigational challenge worthy of Odysseus. In the Greek myth, Odysseus chose to risk his ship by sailing close to the rocks of Scylla rather than risk being pulled under by the whirlpool Charybdis. In our view, policymakers are trying to navigate between the Scylla of high physical inflation today, and the Charybdis of supply constraints that could slow future growth. While it appears that much higher rates are needed today to lower demand and inflation, they may also drive a fall in capex and investment that will prolong the structural undercapacity in physical commodities and hence this environment of high headline inflation and lower growth throughout the 2020s.

We believe that promoting higher investment in capacity – and bearing Scylla’s cost of higher physical inflation today – can policymakers avoid the Charybdis of stagflation.

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