Commodity prices from copper to wheat are collapsing and that could flip global inflation into deflation, says Societe Generale

Natural resources prices have fallen from this year's highs, which will likely lead to a deflationary period in the coming months.

Albert Edward, co-head of global strategy at Societe Generale, looked at the collapse of the commodities complex over the past two weeks in a note published Thursday.

Fears that the global economy is heading into a recession were highlighted by the tip into a bear market for copper.

The industrial metal has fallen more than 20% since a recent high in May at around $4.35 a pound, and agricultural prices have also fallen. The price of corn has fallen close to 30% from its high. In the last two months, wheat and soy have fallen.

The long and short of it is that food price inflation in the US is going to collapse into deflation, just as it did in 2008/09. If there is a global recession, oil should follow suit.

That will be the biggest surprise in the next six months. He said that as commodity prices fall, headlineCPIs will collapse around the world, and with them the inflation narrative. The US 10-year Treasury yield is likely to fall back below 1%. On Friday, the yield was 3.0%.

In the US, headline inflation reached a 41-year high in May, largely due to soaring energy, shelter and food prices. It was the first increase of at least 10% in the food index since March 1981 according to the Census Bureau.

The euro area's inflation hit 8.6% in June, and it was higher throughout Asia. In July, the Reserve Bank of Australia raised its rates for the third time. At its July meeting, the Federal Reserve is expected to raise the federal funds rate by either 50 basis points or 75 basis points.

There are signs that inflation in the US is going to slow. The 5-year breakeven rate fell to 2.5% this week, well off the projected 3.5%.

Those who believe the collapse in commodity prices is caused by hedge fund speculative positions being closed to the raw industrials spot index are incorrect. He said that it too has fallen.

West Texas Intermediate crude andBrent crude, the international benchmark, traded above $100 a barrel on Friday after each of the previous days sank below that price.

It won't take much of a fall from here to get into a yoy deflationary environment because oil prices last year were between $75 and 80 per barrel.