Last week’s inflation report, and expectations of a U.S.-Iran agreement, have eased inflation concerns. However, the inflation outlook is not defined by oil dynamics alone. AI capex, combined with rising global expenditures on defense and energy security, is reinforcing demand for commodities, suggesting a durable capex cycle could lift producer costs and put upward pressure on inflation in the near term. Against this backdrop, investors can seek thematic exposure while building resilience against inflation.
May’s U.S. inflation report suggested that price pressures beyond energy have yet to broaden, easing concerns around second-round effects from the recent oil shock. The announcement of an initial U.S.–Iran agreement reinforced the view that energy-related inflation may peak sooner, and at a lower level, than previously feared. However, the outlook is not solely a function of oil dynamics. The near-term inflationary implications of the AI capex cycle remain underappreciated.
The buildout of AI infrastructure—particularly data centers—is highly resource-intensive. Demand for inputs such as copper and rare earths is rising into a constrained supply, exacerbated by concentrated refining capacity in China. This trend is reinforced by broader shifts in global investment.
Rising global expenditure on defense and energy security continues to support sustained demand for key minerals and industrial metals. Capex-intensive categories—power, electrical machinery and equipment, metals, and chemicals—are already key drivers of PPI commodity inflation, and the sustained capex cycle suggests this trend will persist.
Against this backdrop, investors can position for both opportunity and resilience. Commodities, especially industrial metals, offer exposure to this cycle while providing a potential hedge against inflation. Selective exposure to resource-rich markets such as Canada, Australia, Brazil, and Chile may also benefit. In parallel, private markets are likely to play a growing role in financing technology- and energy-security-related infrastructure, reinforcing their value as a strategic diversifier.
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