Milan Cacic
March 05, 2022
Social media Economy Commentary In the news News Trending Weekly updateINFLATION IS NOT GOING AWAY ANYTIME SOON!
When you are constantly being inundated with information, sometimes it is hard to see the forest to the trees. So I thought I would put down in point form things that have already happened or we know to be true:
- April contracts for West Texas Intermediate (WTI) crude has spiked to as high as $116 USD per barrel.
- The 10 year US Treasury yield has dropped from 2.06% to 1.84%.
- The International Energy Agency has agreed to release 60 million barrels of oil from their strategic reserves.
- Ukraine has abundant supplies of coal, iron ore, natural gas, magnesium, oil, graphite and nickel.
- Russia is the leading supplier of natural gas to Europe and provides over 5 million barrels of oil and 2.5 million barrels of petroleum products to the world each day.
- Chairman Powell stated that the economy is strong enough to continue to withstand rate hikes while pledging that the Fed would "proceed carefully" with the removal of stimulus.
- The already-in-disarray supply chains are getting more disrupted and any commodities that are supplied from Russia and the Ukraine are going to find it very difficult to make it to the market.
No matter how this war ends, it is going to have significant ramifications to the supply of commodities for the foreseeable future. Even if a peace agreement reached tomorrow, it would take months, if not years, to get the supply of commodities back to equilibrium.
One way to get the supply/demand back into equilibrium is to increase the price of commodities to a level where demand destruction takes place. While this might be good for commodity producing countries, it can create many problems for the world economy. It raises input costs for most companies and drains the incomes of energy consumers. Not to mention it would accelerate the already high inflation that we’re experiencing.
No matter how we look at the situation, it is hard to imagine a future where inflation doesn't continue to get worse over the short term.
I've also included a piece from our CIBC economics team entitled "After the hot war, the cold war world.".
If you have any questions please feel free to give us a call at any time.
Have a great weekend.