Oil and steel stoke up inflation

A SHARP rise in steel prices added to 'headline' fears of growing inflation. But some argue the concerns are overdone.

Corus, the Anglo-Dutch steel company, is raising prices 25% - on top of 20% increases earlier this year.

It blames a 'sudden and steep' rise in Chinese steel production, which has sent costs of raw materials such as iron ore soaring. It predicts 'firm' steel demand for the rest of the decade.

Meanwhile crude oil shrugged off the Organisation of Petroleum Exporting Countries' (Opec) promise to raise output by some 2.5m barrels a day.

London prices leapt $1.50 to $38.05 a barrel, New York $2 to $41.72, a fresh closing high.

Markets are certainly worried about renewed inflation. US long bond yields have leapt a third from last summer's lows.

But the average price of all commodities is already down 11% from the winter peak and looks likely to fall further.

Shipping rates, a good forward indicator, have crashed 40% since late January. Markets fear slower world growth, while China is touching the brakes on its booming economy.

Oil is now at record levels, chiefly being pushed higher by speculation and much of it with borrowed money. That usually precedes a sharp correction.

James Montier, strategist at DKW, argues that firms will have limited ability to pass on higher prices to consumers because most industries still have significant overcapacity.