A surge in prices for the raw materials that power manufacturing and transportation shows investors betting on a prolonged expansion—and a potential rebound in inflation.

An index of global commodities prices, the S&P GSCI, has advanced 11% this year, outpacing the S&P 500’s () 9.2% climb. Copper and oil have gained more than 10% and 16%, respectively. Even gold is posting fresh records, rising 14% to a new high of $2,343.50 a troy ounce.

The rally is rooted in expectations that economic growth will increase demand from the U.S. and China, analysts said. A pair of reports last week showing recoveries in both countries’ manufacturing sectors helped spark a fresh wave of buying. That extended an upswing that has boosted shares of energy and materials companies while threatening to lift the price of gasoline just ahead of summer driving season.

And many expect the climb could continue for some time. Real income growth has sparked a reacceleration in global goods demand that is likely to propel commodity prices even higher, the Commodities Strategy team at Macquarie Group said in a report.

That could complicate the Federal Reserve’s inflation fight when investors are already beginning to doubt if the central bank can trim interest rates later in the year. The prospect that borrowing costs would soon come down helped spur a stock-market rally that has carried major indexes to records.

“Commodities are going to be potentially one factor that can interfere with Fed cuts,” said Francisco Blanch, head of global commodities and derivatives research at Bank of America.

The rally reverses an 18-month-long slide from the highs reached after Russia’s invasion of Ukraine sent prices of oil, natural gas, grains and industrial metals skyrocketing. A gloomy U.S. economic outlook including an expected recession, higher interest rates and a Chinese economy struggling to recover from Covid-era lockdowns all dragged on futures in the subsequent months.

Instead, the recession never came. The U.S. economy has remained robust even as inflation has cooled. The labor market has repeatedly beaten expectations. A Federal Reserve Bank of Atlanta model last week raised its inflation-adjusted estimate of U.S. growth for the first quarter by half a percentage point to 2.8%.

Now, recent action in the oil market shows how growing global demand has joined idiosyncratic factors to boost the costs of key commodities.

Drone attacks in Russia and conflict in the Middle East have helped propel petroleum prices higher. Brent crude futures, the global oil benchmark, recently topped $90 a barrel, their highest level since the aftermath of Hamas’s October attack on Israel. Supplies have been tightened lately by slowing U.S. production growth and output cuts by the Organization of the Petroleum Exporting Countries and its allies, said Bjarne Schieldrop, chief commodities analyst at SEB, in a note last week.

At the same time, a brightening economic outlook has analysts at the International Energy Agency raising their forecasts for this year’s global oil demand.

“A tight market and rising macro optimism is driving crude oil prices higher,” wrote Schieldrop.

Rising prices are lifting shares of oil producers. Energy is the second-best performing sector of the S&P 500 index this year, up 16%. Exxon Mobil () stock hit a record Friday. Strong demand for gasoline, diesel and jet fuel has also recently powered shares of refiners, including Valero Energy (), Marathon Petroleum () and Phillips 66 (), to record highs.

Similar forces have fueled a recent climb in prices for copper—a popular barometer of economic health because of its use in construction and electronics. Futures have jumped 16% in the past two months to $4.29 a pound, their highest level since June 2022. Goldman Sachs reported that demand from China, which comprises more than half the world’s total, was running 12% higher than last year.

Some analysts said the commodities rally has also been intensified by speculators. Bullish copper bets on the London Metal Exchange have climbed to their highest level since 2021, according to TD Securities. Oil’s recent rally has been amplified by macro hedge funds scrambling to unwind bets that prices would go down, said Bob Elliott, chief executive officer of Unlimited, whose firm uses AI to track trading activity in real time.

“The hedge fund positioning, being so short, is starting to get squeezed, which is then adding further upward movement in the price,” he said.

Since commodity prices are an important driver of prices across the economy, investors often buy futures as a hedge against inflation. That has helped support the latest leg of gold’s run to records.

Dana Grigg, president of wealth-management firm Camelotta Advisors, said his firm pivoted to an “early growth cycle orientation” at the beginning of this year. He puts a fraction of his clients’ money in oil and gold as an inflation hedge and to bet on economic growth. That fraction has grown with rising prices, but he isn’t selling to rebalance.

“We want to catch the wave,” Grigg said. “You don’t want to get off too early.”