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INFLATION IN OECD COUNTRIES TOUCHES 25-YEAR HIGH
Inflation across member nations of the Organization for Economic Cooperation and Development (OECD), which includes most of the world’s 37 richest countries, ran at 5.8 percent in November, compared to 1.2 percent a year earlier, according to OECD figures released last week.
It was inflation’s fastest annual pace among the group since May 1996.
Energy prices rose 28 percent through the year, up 3 percent from the month before, growing at the fastest clip since June 1980.
Food prices grew 5.5 percent in November, compared to October’s pace of 4.6 percent.
The U.K.’s inflation rate in November was 5.1 percent. Early figures show the Eurozone’s price rise for December was 5 percent; in the U.S., it was 7 percent (see related story in this issue).
“Citizens have considerably less money left in their wallets,” Jaochim Nagel, the Bundesbank’s new president and a member of the European Central Bank’s (ECB’s) governing group, said in a public statement.
“Is the very loose monetary policy still appropriate?,” he asked. “If so, for how much longer?”
The U.S. Federal Reserve and the ECB have set 2 percent as their ideal rate of inflation, a number far out of reach at the moment.
However, several analysts continue to believe that price growth is peaking.
Inflation among developed nations “will fall sharply in 2022,” Oxford Economics analyst Ben May told the Financial Times.
Inflation in the U.S. is topping out now, he added, and will do so in Canada and the U.K. in April.
Inflation in the Eurozone peaked last month, according to Barclays economist Silvia Ardagna.
Still, November’s figures “suggest that inflationary pressures may persist in coming months as companies may eventually pass the increase in production costs to consumers,” she said to the FT.
TREND FORECAST: While some prices may be peaking, as with the rise in oil and gas prices, it is hitting the business and consumer segments very hard. And should military tensions increase in the Middle East and oil prices rise higher, it will take a heavy toll on all sectors of the economy.
Also, should the Ukraine crisis worsen and Russia cuts natural gas supplies to Europe, that too will drive inflation much higher.
INFLATION RANKS AS MAJOR CORPORATE THREAT
After barely registering on a Conference Board poll a year ago, inflation has rocketed close to the top of corporate threats, the group’s annual survey of more than 1,600 executives, including 917 CEOs, has found.
More than half of executives surveyed, including 59 percent of U.S. CEOs, expect upward pressure on prices to remain uncomfortable through mid-2023.
“We have to be very careful about how [inflation] gets solved, because it’s like driving your vehicle,” Honeywell International Darius Adamczyk told The Wall Street Journal.
“If you slam on the brakes too hard, you could see the other side of inflation, which is recession,” he warned.
Corporate leaders warned more and more strongly about inflation’s dangers through last year while the U.S. Federal Reserve maintained that inflation was first “temporary,” then “transitory,” with Fed chair Jerome Powell only deeming it a “severe threat” last week during his Senate confirmation hearing to serve a second term as the central bank’s chair.
U.S. inflation’s annual rate ballooned to 7 percent in December, according to the labor department, its fastest clip in 40 years (see related story in this issue).
Europe’s corporate leaders ranked inflation as their top-ranked worry, placing the COVID virus in 10th place, lower than regulatory interference.
Their counterparts in China and Japan still see the COVID virus as the main danger to business this year, the survey found.
Eighty-two percent of CEOs worldwide reported rising pressures on prices. In China, the pressures come strongly from higher costs for raw materials, while in Europe the chief forces driving prices are the prices of energy and food.
The U.S. economy is service-centered, meaning a large share of the workforce can labor at home. In contrast, China relies heavily on manufacturing; a bout of COVID can shutter factories and tank the nation’s economy.
Globally, a third of CEOs, and 53 percent of those in the U.S., say that at least 40 percent of their employees will continue to work remotely at least three days a week.
TRENDPOST: We have documented the Fed’s intransigence about inflation and its insistence that it was “temporary” or “transitory” long after the facts were proving it wrong. See our “U.S. Markets Overview” (18 May 2021), “Feds Send Mixed Signals on Policy Shift” (29 Jun 2021), and “When Will the Fed End Cheap Money Policy?” (27 Jul 2021).
U.S. INFLATION HIGHEST IN 40 YEARS
The U.S. 12-month inflation rate roared to 7 percent in December, edging past November’s 6.8-percent pace to notch its highest mark since June 1982.
The core inflation rate, which sets aside food and energy costs, rose at 5.5 percent last month, also more than 4.9 percent the month before and the sixth time in nine months that the rate has gained more than 0.5 percent from one month to the next.
Hikes in lodging, home rental rates, and used vehicle prices drove the increase according to the federal Bureau of Labor Statistics (BLS).
Prices for clothing, food, furnishings, and medical care all swelled.
Overall shelter costs, which comprise about a third of the price gauge, rose 0.4 percent from November and 4.1 percent year on year, their speediest rise since February 2007.
Used-car prices were up 3.5 percent compared to November and almost 40 percent on the year. The pump price of gasoline dropped 0.5 percent, fuel oil cost 2.4 percent less, and energy prices in general dipped 0.4 percent, their first decline in several months.
Food prices edged up 0.5 percent last month but 6.3 percent through all of 2021, their most sizable gain since October 2008.
Restaurant menu prices grew by 0.6 percent month to month and 6 percent over the preceding 12 months, also the biggest yearly gain since 1982.
In December, wages grew 0.6 percent from November, eking out gain above inflation of just 0.1 percent. However, pay grew only 2.4 percent through all of 2021, offsetting less than half of inflation’s damage to prices.
“There is nothing in the details of the data that suggest inflation is fading in any meaningful way,” Eric Winograd, fixed income economist at AllianceBernstein, told the Financial Times.
The BLS released its data a day after Jerome Powell, chair of the U.S. Federal Reserve, admitted inflation is a “severe threat” to the jobs market and confirmed that the Fed will stop buying bonds within weeks.
TREND FORECAST: We forecast the Fed will raise interest rates at least four times this year and another three or four times in 2023. Again, as we have noted, they will slow down the economy to push down inflation and lower interest rates to boost the economy prior to the 2024 Presidential elections.
As for the Feds rapidly raising rates, while long denying it, now equity markets seem to agree; investors are pricing in a 50-percent chance the central bank will make four such increases this year and a 79-percent bet that the first will be set in May, according to CME’s FedWatch Tool.
NICKEL PRICES JUMP TO 10-YEAR HIGH AS EV MARKET GROWS
The price of nickel, a common element used to make stainless steel and battery packs for electric vehicles (EVs), leapt up 4 percent on 11 January to reach its highest in a decade as stockpiles shrink and major automakers scale up their EV production, the Financial Times reported.
Supplies on hand have declined for more than 51 consecutive days, pushing the metal’s price as high as $22,745 a ton on the London Metal Exchange.
China has reported 4,859 tons on hand, near a record low.
China’s growing domestic EV market and the nation’s plan to become a global player in electric vehicles “micro and macro conditions are beginning to align, driving a repricing of metals toward scarcity,” Goldman Sachs analyst Nicholas Snowden commented to the FT.
“We are starting to see consumers wake up and recognize the problems that exist” with nickel supplies, Jeremy Weir said in remarks to Saudi Arabia’s Future Minerals Forum last week.
Tesla has signed an agreement to buy 75,000 tons of nickel from Minnesota’s Tamarack project. BHP, the world’s largest minerals miner, has announced its involvement in a major nickel venture in Tanzania.
“The recent plethora of announcements around nickel development projects is testament to the confidence in future market fundamentals on the engines of stainless steel and battery demand.”
Demand for nickel will soar 19-fold if countries get serious about meeting their 2040 Paris climate commitments, the International Energy Agency noted in a recent report.
TREND FORECAST: Nickel is only one of a range of commodities that will remain in short supply for the indefinite future, as we reported in “Commodities Supercycle Underway?” (11 May 2021).
Key minerals such as cobalt, copper, and nickel will remain short of demand for at least the next two years, as demand for electronics and all-electric vehicles rises and new mineral mines face lag times of at least two years before being ready to deliver commercial quantities.
Companies that depend on steady supplies of these minerals, as well as OnTrendpreneurs™, will see reclaiming and recycling these materials as a critical new industry.
EUROPE’S GAS PRICES JUMP AFTER RUSSIA TALKS BREAK DOWN
Natural gas prices in Europe jumped almost 25 percent on 13 and 14 January to the equivalent of €90 per megawatt-hour after talks among the U.S., NATO, and Russia about tensions over Ukraine deadlocked.
The breakdown heightened fears of military conflict and a shutoff of Russian gas into Europe at a time when the continent’s gas storage levels are at record lows for this time of year.
Last fall, gas prices in the region shot up after Russia curtailed the usual spot-market sales and restricted deliveries only to those called for under long-term contracts.
Russia cut its year-over-year gas exports to Europe 25 percent in 2021’s fourth quarter, according to the International Energy Agency.
Russia used the tactic as leverage in its demand that NATO add no more member nations along Russia’s border, the agency alleged.
TRENDPOST: Russia denied the claim but has said it wants European customers to commit to more long-term contracts and has linked higher exports to Germany’s approval of its new Nord Stream 2 pipeline.
The line would bypass Ukraine, which could weaken the country economically.
Under continuing pressure from the United States, Germany has balked at the project, citing environmental concerns.
On 13 January, the European Union’s commissioner for competition said the union may open a formal probe into the behavior of Gazprom, Russia’s state-owned gas company.