Commodity prices are booming, from Oil, Wheat Nickel and Gas, as the fallout from Ukraine drives momentum which was already in play before the recent conflict started. To get a sense of how volatile commodity markets are right now, take a look at the chart below from Deutsche Bank’s Jim Reid, based on Thomson Reuters’ core commodity index. Reid points out,this I starting to mirror the energy price shocks of the 1970s. The rolling 3-month move in this overall commodity index was at +35.9%, just below the highest ever which was the +41.9% seen in the three months to August 11th 1973 . At that was before the latest gyrations. Surging energy and commodity costs mean high inflation is inevitable.
The euro zone is particularly dependent on Russian energy and is therefore the most exposed to stagflation risks, though the United States isn’t immune. Goldman Sachs analysts estimate a sustained $20 rise in oil prices would erode euro zone GDP growth by 0.6 percentage points this year. If Russian natural gas stopped flowing, an additional 2.2 percentage points would be lopped off, they say. That would put paid to most of the economic expansion expected by the European Commission, which in February forecast growth of 4% for 2022.
Have no doubt, Costs of living will spike higher than previously anticipated, and the overhang will be longer.
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