Central Banks Are Behind The Curve On Inflation Again! What Does That Mean For Commodities?

Phil Carr
Published: Feb 28, 2023, 12:24 GMT+00:00

While global inflation has retreated from multi-decade highs, it still remains uncomfortably high and close to the highest it’s been for a generation.

Gold, FX Empire

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Inflation Remains Uncomfortably High

As February comes to a close and we head into March – signs of Re-Accelerating Inflation, Higher-For-Longer Rate Hikes and a “No Landing” scenario – are now emerging as three of the biggest and most explosive macro themes of the current financial climate that we find ourselves in right now!

The latest inflation figures from the United States, the United Kingdom and the European Union are all showing evidence that the fight against steep price rises is far from won – fanning fears that elevated inflation could become stubbornly entrenched into many parts of the economy.

While global inflation has retreated from multi-decade highs, it still remains uncomfortably high and close to the highest it’s been for a generation.

Recent data showed, annual inflation in the United States slowed to 6.4% in January. While in Europe, inflation is currently holding at 8.5% after peaking at 10.6% in October. Elsewhere, in the United Kingdom, which faces weaker economic prospects than its peers, the rate of price increases is currently running at 10.1% from a recent high of 11.1%.

All of that comes despite one of the most aggressive interest rate hiking campaigns ever seen by the Fed and its global central-banking peers since the 1980s.

According to a growing chorus of leading Wall Street banks including Goldman Sachs, Bank of America and Citigroup “there are signs emerging that the disinflation trend may prove to be transitory – enhancing the odds that inflation will tick higher again in a few months from now”.

Interestingly, we have seen this exact scenario play out before – in the 1970s and early 1980s, when global central bankers slowed down the pace of rate hikes too fast – only to see inflation re-accelerate.

Will this time be any different? Only time will tell!

However one thing we do know for certain is that there is a strong correlation between inflation and Commodity Prices. When inflation accelerates at a red-hot pace, so does the prices of Commodities.

Looking ahead, it’s another big week for traders that will once again – keep inflation firmly at the centre of the markets’ attention. A raft of U.S data and Eurozone inflation numbers will give more insight on the near-term path of interest rates. While PMI data from China will show how the reopening of the world’s second largest economy – and the biggest consumer of Commodities is faring after the Lunar New Year holidays.

And just in case that wasn’t enough to keep traders busy, also on the radar will be a host of Central Bank speeches from the Fed, BoE and ECB driving market sentiment throughout the week.

Commodity Price Forecast for the Week

Where are prices heading next? Watch The Commodity Report now, for my latest price forecasts and predictions:

About the Author

Phil Carrcontributor

Phil Carr is co-founder and the Head of Trading at The Gold & Silver Club, an international Commodities Trading, Research and Data-Intelligence firm.

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