Commodity prices have surged in recent months, as economic growth sparks demand and the Russia-Ukraine war keeps commodity supply off the market.

The S&P GSCI commodity price index has jumped 26% year to date. And commodity prices have potential for substantial further gains from here, according to J.P Morgan strategists.

“In the current juncture where the need for inflation hedges is more elevated, it is conceivable

to see longer-term commodity allocations eventually rising above 1% of total financial assets globally, surpassing the previous highs seen during 2008 or 2011,” the strategists wrote in a commentary.

And what does that mean for commodity prices? Such a development “would imply another 30% to 40% upside for commodities from here,” the strategists said.

Other experts see continued interest in commodities too. “They [commodities] probably have some investors taking a second look: ‘should I be putting commodities back into my portfolio, given elevated inflation levels?’” Karim El Nokali, an investment strategist at Schroders, told The Wall Street Journa.

U.S. consumer prices surged 7.9% in the 12 months through February, the highest in 40 year.

Volatility is likely to remain the rule for commodity prices, Gregory Broussard, head of financial trading for Cargill’s risk management unit, told Bloomberg. Even after the Ukraine war, other countries may shy away from Russia’s commodities, he said. That could well lead to hoarding.

“We will exit this war from the supply side tighter than we entered it,” Broussard said. “When people start throwing sanctions around, they don’t just dissipate overnight. It has implications for routing of raw materials.”

Meanwhile, rising commodity prices figure into Deutsche Bank’s forecast for recession.

“Two shocks in recent months, the war in Ukraine and the build-up of momentum in elevated U.S. and European inflation, have caused us to revise down our forecast for global growth significantly,” Deutsche Bank economists wrote in a commentary.

“We are now projecting a recession in the U.S. and a growth recession in the euro area within the next two years."

The Russia-Ukraine conflict plays a major role in the equation, they said. “The war, which has transitioned into a stalemate that is unlikely to be resolved any time soon, has disrupted activity on a number of fronts,” the economists note.

“These include upheavals in markets for energy, food grains, and key materials that have in turn further disrupted global supply chains.”

Further, “inflation psychology has shifted significantly,” the economists said. “And while longer-term inflation expectations have not yet become unanchored, they are increasingly at risk of doing so.”

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