Commodity Disinflation: Nuanced Trends and Risks to Liquidity and Growth

Turning to producer price trends, November 2025 data shows overall inflation at the producer level easing, suggesting a possible soft landing for the economy according to PPI data. The disinflation is nuanced: core components are drifting lower, but energy commodities display mixed signals, with refining costs climbing. This divergence creates sector-specific volatility, which could pressure profits for energy-focused firms while offering opportunities for renewable players.

Global commodity prices are projected to fall 12% in 2025, driven by oil oversupply and weaker demand from electric vehicles. Brent crude is expected to average $64 per barrel this year. Energy and coal prices will drop sharply, offsetting some inflationary pressures from tariffs, but the decline threatens fiscal stability in roughly two-thirds of commodity-dependent economies. This pressure could strain government budgets and, for cash-rich firms, prompt tighter cash flow management amid weaker export earnings.

Commodity Markets: Disinflation's Double-Edged Sword

Disinflation in 2025 appears more nuanced than headline figures suggest. Producer price inflation has eased overall, driven significantly by improved supply chain efficiency and moderating consumer demand, though underlying pressure remains uneven across sectors. Slowing wage growth and the lingering effects of post-pandemic supply chain disruptions contribute to this trend, lowering input costs for many manufacturers and potentially supporting profit margins for some businesses. This environment, coupled with policy uncertainty, raises hopes for a potential "soft landing," which could encourage continued investment and potentially stabilize monetary policy.

However, this disinflation story masks persistent underlying tightness in physical commodity markets. Despite futures curves sometimes appearing in contango (future prices above spot), adjusted for interest rates, key markets show hidden backwardation averaging 4%. This signals ongoing supply deficits and scarcity, particularly for physical delivery, suggesting commodity prices may remain resilient even as broader inflation cools. This hidden scarcity, combined with a resilient US dollar, creates a complex backdrop where disinflationary signals coexist with fundamental supply constraints.

Crucially, energy cost volatility continues to pose a significant threat to manufacturing profitability. While global commodity prices are projected to fall substantially overall, energy prices specifically are forecast to drop sharply in 2025 and 2026. Yet, this decline is not linear; Brent crude remains volatile, and the transition to electric vehicles, while dampening long-term demand growth, introduces short-term market adjustments. This volatility means that even as input costs trend lower, sharp fluctuations in energy prices can quickly erode manufacturing margins and disrupt production planning, creating ongoing financial friction for energy-intensive industries.

For businesses, the takeaway is clear: while lower input costs from disinflation offer margin relief, the hidden scarcity in physical markets and persistent energy price volatility mean these benefits are uneven and subject to short-term shocks. Companies must remain vigilant about both cost inflation risks and supply chain resilience.

Risk and Guardrails for Liquidity

US inflation remains stubbornly above the Federal Reserve's 2% target (CPI at 2.9%, Core CPI at 3.2%), creating uncertainty around future monetary policy paths. This persistence, coupled with unresolved fiscal deficits and tariff disputes, could trigger upward revisions that reignite price pressures and complicate liquidity planning for businesses. A stronger US dollar, supported by elevated Treasury yields and trade policies, continues to suppress global commodity prices through inverse correlations, reducing export revenues for commodity-dependent firms and tightening cash flow conditions. Meanwhile, gold's surge as a safe-haven asset amid geopolitical tensions may divert capital away from traditional liquidity channels, potentially amplifying market volatility and constraining access to financing during periods of stress. This combination of inflationary inertia, dollar strength, and shifting investor behavior underscores significant downside risks to liquidity buffers and working capital management. According to the World Bank outlook, this scenario could persist through 2025.

Liquidity Implications and Catalysts

Turning to liquidity, the outlook hinges on the tension between monetary easing and commodity market pressures. The Fed's stance appears set to stay accommodative, easing corporate borrowing constraints despite the disinflation seen in producer price data. However, a strong dollar, tighter physical markets, and policy uncertainty-including possible tariff escalations-could push liquidity signals in the opposite direction, with higher Treasury yields bolstering the dollar, commodity markets showing hidden backwardation of about 4%, and inflation remaining above 2% according to Morgan Stanley analysis.