TR Monitor

Goldilocks threatened by commodity prices

• Reflation is increasingly becoming a clear-cut possibility. The latest Chinese manufacturing data showcased an unprecedented 9% year-on-year boom in producer prices on account of the surge in the cost of imported raw materials.

• True, CPI remains subdued but PPI also matters. It matters because it is the Chinese PPI. This means an inflationary spiral might be inserted in world production prices.

• Oil, metals, and chemicals are the main culprits but actually almost all commodity prices are soaring as the latest WB Commodities Price Data (The Pink Sheet) demonstrates.

• Non-energy prices went up by 6.8% whereas energy prices spiked by 7.1%. These are month-on-month changes. Food prices are up by 6.9%, a bad omen for Turkey also. Metals are a go with a 9.1% monthly surge.

• This isn’t yet akin to the 2008-09 price cycle or to the earlier super-commodity cycle. However, because markets still buy the goldilocks scenario, this should have come as a warning call.

• The Fed need not reverse course so a goldilocks economy is disturbed, and either a boom or a bust cycle begins. Commodity prices or any exuberant rise in asset prices might ring alarm bells.

• Oil prices are also fluctuating a lot. This means after 2005 things have changed. There is no way to control real oil prices and its volatility as before, i.e. between 1880 and 1973.

• Unless fossil energy prices are controlled and carbon taxes are raised to the long-term optimal level as William Nordhaus suggested in 1996 and the Stern Report estimated in 2007, there is no way to come up with less volatility and less consumption. This will reflect on all asset prices and might well cause reflation.

FOREIGN POLICY

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2021-06-14T07:00:00.0000000Z

2021-06-14T07:00:00.0000000Z

https://trmonitor.pressreader.com/article/281977495567303

NASIL BIR EKONOMI MEDYA HABER BASIN A.S. (Turkey)