Higher commodity prices are telegraphing higher inflation, but G-7 central banks are reluctant to combat the CRB index with tighter monetary policies. The Federal Reserve and the European Central Bank are expected to hike their lending rates by a quarter-point this week, but not high enough to restrain hedge fund traders in commodities. The FTSE 350 Mining Index has risen by 85% since the start of 2005. Mining companies and oil producers - led by the likes of Rio Tinto and Shell now make up 27% of the FTSE. Last year, China soaked up 20% to 25% of global base metal output, compared with 5% in the 1980s. Analysts estimate that a 20% swing in commodity prices could impact the profits of mining companies such as Rio Tinto (RTP) and BHP Billiton (NYSE:BHP) by up to 35 per cent.
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