Economists might like to believe that inflation is somehow a monetary phenomenon. But as we are all likely to learn to our cost over the winter, food and energy prices are critical for most people. Oil prices are already rising. And food prices are joining them.
Chemicals and the Economy
It’s too soon to talk of an actual energy crisis. But as the charts showing Brent oil and European natural gas prices confirm, it is certainly time to start planning for the possibility: Oil prices have recently risen 25%. And Europe risks gas shortages if there is a cold winter
Bubbles are great fun while they last. But they are much less fun when they burst. For the past 20 years, central bank stimulus has created some of the largest bubbles ever seen. But now, led by developments in Japan and China, they are bursting
As the World Food Programme warns, “High fertilizer prices could turn the current food affordability crisis into a food availability crisis, with production of maize, rice, soybean and wheat all falling in 2022.”
As the head of Germany’s Employers’ Associations warned last month: “We are facing the biggest crisis the post-war Federal Republic has ever had. We have to be honest and say: First of all, we will lose the prosperity that we have had for years”.
The election’s timing could hardly be worse, with Johnson now just a caretaker premier. Russia is threatening food and energy security by cutting fertiliser and gas supplies. The UK should be working very closely with the EU on these critical issues. But instead, we may well see candidates attack the Protocol and the EU to win constituency support.
We are facing a perfect storm of global food, energy and financial crises set off by the war in Ukraine. Analysts need to stop focusing on monetary policy and the inversion of the yield curve. They need to look out of the window and start dealing with the geopolitical reality of Putinflation.
Consumer sentiment is already at all-time lows. Rising energy, transport and food prices will likely soon push inflation above 10%, and interest/mortgage rates to 5%+, adding to the risk of a major and long-lasting downturn.
Central banks and investors believed stimulus programs had created a “New Paradigm” where asset prices would always increase. Now they are starting to realise that stimulus is irrelevant against the 3 Horsemen of the Apocalypse – China’s continuing battle with the pandemic, Russia’s invasion of Ukraine, and potential for famine as rising gas/fertilizer prices mean farmers can’t afford to grow their crops or feed their animals.
These are difficult times, and there is no guarantee that they may not get worse. But they also remind us of the critical need to move beyond the Age of Oil, and develop more sustainable energy resources for the future.