FROM WRONG TO WORSE: Rising gas prices could block global inflation decline – News source

Rising gas prices, a shortage of staff and a lack of commercial vessels fuel rising prices above expectations and call into question the idea that inflation will be transitory, according to analysts interviewed by Reuters.

Representatives of central banks, while still saying that inflation will slow down, are beginning to recognize that rising prices will be raised for a longer period of time due to a number of factors that support rising prices for goods and services and raise inflationary expectations.

Their findings will ultimately determine how quickly central banks will begin to withdraw stimulus measures that have flooded the market with billions of dollars to mitigate the impact of the Covid-19 crisis.

“Will central banks focus more on growth and stay a little under the curve? Or will they be more concerned about inflation and start withdrawing stimulus measures sooner? ”Asked Charles Diebel, director of fixed income and asset manager at Mediolanum International Funds.

Here are five major elements in inflation discussions:

Natural gas inflation

Gas prices have risen in Europe and the United States by more than 350% and 120% this year, respectively. The price of oil has risen by about 50%, and Goldman Sachs anticipates that the price of brent oil will reach $ 90 a barrel this year, from about $ 80 a barrel today.

Gas and electricity account for 4.8% of the harmonized inflation basket in the euro area, used by the European Central Bank. Rabobank considers that the rise in prices is a separate shock that could add 0.15 percentage points to its estimate of inflation in the euro area for 2021, of 2.2%, and another 0.25 percentage points to the 2022 estimate of 1, 8%.

Many economists believe that high gas prices will continue, due to the slowdown in US production, rising carbon emissions prices for pollutants and declining use of more polluting fuels.

In China, where inflation reached 9.5% in August, power outages have reduced production of cement-to-aluminum products.

Those feathers are a risk to end users such as the euro industry’s supply chains, according to Morgan Stanley.

Chip inflation

Semiconductors, or as they are known, are small, but they have an oversized impact on global factories. At General Motors alone, the lack of chips reduced third-quarter vehicle deliveries by 200,000 units, while declining production caused second-hand car prices to rise sharply.

Chip prices have risen, and Taiwan’s semiconductor giant TSMC is looking at new increases of up to 20%. This increase will raise the prices of all products, from electronics to cars, phones and washing machines.

But chip makers also face higher costs from raw materials to energy.

“It looks like these semiconductor shortages will persist until next year,” said Jack Allen-Reynolds, senior European economist at Capital Economics.

The Intel CEO anticipates that semiconductors will account for a fifth of the cost of a car by 2030, from 4% in 2019, as vehicles become autonomous or electric.

Food inflation

Food prices rose 30 percent globally in 12 months in August, according to an index calculated by the Food and Agriculture Organization of the United Nations, a sign of rising price pressures.

While higher agricultural commodity prices are behind this increase, JPMorgan analysts also attribute food price inflation to pandemic pressures, such as logistical disruptions and transportation costs.

In emerging markets, where food accounts for much of the basket of inflation, there is more pressure to tighten monetary policy. It is less of a problem for developed countries, but rising prices seem inevitable for items such as soft drinks and snacks.

Environmental inflation

Environmental inflation is attributed to strict rules for determining the transition to a greener future, for example by closing factories and eliminating the vehicles of polluting ships and mines, reducing the supply of goods and services. Prices for European carbon quotas have doubled this year to 65 euros per tonne. A price of 100 euros would lead to a 12% increase in European energy retail prices, adding 0.35 percentage points to euro area inflation, Morgan Stanley estimated in June.

There are other examples. Declining ship orders due to future changes to fuel rules could offset the rise in transport tariffs, which have already risen 280% this year. Wage inflation

As prices rise, so do inflationary expectations from consumers, who demand wage increases. The salary increase situation is mixed. The wage growth picture is mixed. US average hourly earnings rose 0.6% in August, and US five-year inflation expectations rose to about 3%, polls show.

In some parts of the UK, earnings have risen by up to 30% this year. Eurozone labor costs fell in Q2, but both inflation and inflation expectations rise.

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