Inflation Is Cooling. But Will Surging Energy Prices Keep September Rate Hike On Table?

Inflation Eases but Challenges Remain: Federal Reserve’s 2023 Outlook

The Federal Reserve entered 2023 focused on one central goal; driving down stubbornly high inflation that has plagued the economy since 2021. Whilst conclusive evidence shows that “the disinflationary process” is well underway – a reignited rally in the energy market suggests it’s too early for the Fed to declare victory yet.

There is no denying that America’s inflation problem is definitively getting better. That’s good news for Jerome Powell and his colleagues at the Federal Reserve.

On Thursday, The Bureau of Labor Statistics reported that a key measure of inflation – watched closely by the Fed rose 0.2 percent for a second straight month in a row. That marked the smallest back-to-back monthly increase in more than two years.

The progress on inflation, combined with steady economic growth and a gradually cooling labour market, represent another step in the right direction for the Federal Reserve. The highest interest rates in 22 years have played a role in calming price pressures. But the good news on U.S inflation comes with an asterisk.

And that asterisk is red-hot energy prices.

A Look at Energy Market Trends

Oil prices are on the rise again, following Saudi Arabia’s announcement last week to cut production, which threatens to undo the Federal Reserve’s hard work to fight inflation over the past year.

As a result of Saudi Arabia’s on-going efforts to sign expensive footballers like Cristiano Ronaldo and build futuristic mega-cities – the Kingdom requires higher Oil prices to pay for its ambitious economic vision.

In order to break even, Saudi Arabia needs Oil prices trading above $85 a barrel. Anything below that puts them into deficit. This ultimately means Saudi Arabia’s desired “sweet spot” for Oil prices is between $90 and $100 a barrel – and as we have already seen, they are prepared to do whatever it takes to achieve their goal!

This week Oil prices touched $88 a barrel and are firmly on track to post their seventh straight weekly gain. That’s Oil’s longest winning streak in more than a year – taking current gains over 32% from their recent lows.

Elsewhere in the Energy markets, the real star performer this week was European Natural Gas.

European Natural Gas prices have been on an unstoppable run – soaring over 40%, in a single day alone. That’s the European benchmark’s biggest daily percentage gain since Russia’s war in Ukraine.

The summer spike in Natural Gas prices on both sides of the Atlantic are being driven by high demand as scorching heatwave temperatures through much of the world force businesses and households to crank up the air conditioning.

Prices are currently 4.5 times higher than where they usually are for the time of the year. And we haven’t even entered the winter months yet, when prices will enviably surge higher again.

Extraordinary times create extraordinary opportunities and when you consider the full magnitude of events that are currently unfolding –it comes as no surprise to see why Commodities present one of the greatest wealth creation opportunities right now!

Commodity Price Forecast

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