Tonight:
5°c
If you were looking for signals that the commodities boom is at its peak, they don't come more powerfully than they did this week. First was news that Lakshmi Mittal, one of the richest men in the world with a fortune founded on steel, let it be known he has just paid £70 million for a house in Kensington Palace Gardens.
This is just a stone's throw from the house he bought a month ago for £117 million fromGLG hedge fund manager Noam Gottesman. This should not be confused with the house where he actually lives, which is in the same street and which he bought four years ago for £57 million, or with his £40 million "country" bolt-hole in The Bishops Avenue, Hampstead.
If these signs of hubris from one of its key players were not an indication that the boom has been going on too long, we then heard the Chinese have agreed to a price increase for iron ore of as much as 96% in a deal with Rio Tinto.
The explanation for this rise was that "growth in China, India and the Middle East continues to be strong", and it would need to be.
But the issue surely is not how strong that growth is now, but how long it is likely to remain so. Things that go up like a rocket do tend to come down like a stick, and there are pressing signs that the Chinese need to slow things down.
While we worry about the return of inflation in the West, in China they already have it, and in a country where
food still accounts for the bulk of spending, it has hit particularly hard.
Even conservative estimates put it at close to 10% and it does not take much juggling with the numbers to deliver an effective rate that is higher still, so at some point soon the authorities are going to have to do something about it. That means using higher interest rates to cool the economy and bring about a significant reduction in the growth rate.
Nor may we have to wait much longer for this to happen. Noted China watcher Charles Dumas of Lombard Street Research,thinks just after the Olympics at the end of August is the kind of time they would choose.
They might not act, of course, in which case prices may continue to go higher, which would be bad news for us as well as them, because it could be just the thing to force the Bank of England's monetary policy committee to increase our interest rates even further.
But that is not the way to bet. The Chinese are not stupid, and they understand how little point there is in selling
goods to America that are paid for in paper dollars, which then depreciate as the greenback devalues.
So tightening monetary policy, encouraging the export of capital and dampening down the boom all make sense.
However, they would also rob the commodity boom of its momentum, because even a slight fall in China's demand will tilt the balance back from shortage to excess. Prices will not fall back to zero, but they can come back a long way off the top.
It is hard to avoid the conclusion that those with profits in commodities should take them. Excess is everywhere and a boom at these levels surely can't continue much beyond the autumn.
