Daily Brief: Just When We All Thought Inflation Might Have Peaked…

Daily Brief: Just When We All Thought Inflation Might Have Peaked…

over 1 year ago3 mins

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Data out on Friday showed that consumer prices in the US rose by more than expected last month, dashing optimistic economists' hopes.

What does this mean?

Economists were hopeful that Friday’s inflation report would bring some good news, especially since the last two reports had shown signs that US consumer prices might’ve already peaked. Add in the fact that current price data is starting to be compared to 2021’s elevated prices, and you’d think the uptick would, you know, come down.

So imagine their disappointment when Friday’s data revealed that US consumer prices rose by a higher-than-expected 8.6% last month compared to the same time last year – a fresh over-40 year high. You can blame a lot of that on still-rising energy prices, including the exorbitant prices you’ll find at the gas pump these days. And wages just aren’t rising fast enough to keep up with those higher costs: inflation-adjusted wages fell 3% in May, marking the fourteenth straight month of declines.

US inflation

Why should I care?

The bigger picture: Risky business.

Gas prices hit new record highs this month, which could be a sign that even higher inflation figures are still to come. That could force the Federal Reserve to bring in more aggressive interest rate hikes to try and curb the rise, but that move could slow down the economy even more. That’s risky: some economists already predict a recession at some point next year, and more rate hikes would only make that more likely.

Gas prices

Zooming out: Cathie’s still holding on.

At least someone has hope: renowned investor Cathie Wood – manager of the ARK innovation fund – thinks the huge inventories that some US companies are holding could end up cooling inflation going forward. After all, if retail giants like Target start selling billions of dollars worth of stock at huge discounts, then that should do its bit to pull down those consumer prices.

Keep reading for our next story...

Commodities Trading Giant Trafigura Posted A Record Profit

Trafigura image

Commodity trader Trafigura reported record half-year profits on Friday.

What does this mean?

Trafigura makes its money by selling and shipping metals, oils, and other commodities globally, so it's been raking it in while lingering supply shortages – brought on by the pandemic and war – push commodity prices higher and higher. The firm’s been trading more by volume too, especially after customers flocked to reinforce their supply networks when war broke out in Europe. In fact, Trafigura traded more of all its main commodities between last October and this March compared to the year before, even notching record volumes in its key oil and metal segments. Case in point: Trafigura handled a record 7.3 million barrels of oil a day on average, equalling about 7% of total global supply. That really made a difference to its bottom line: the trading giant made a record $2.7 billion in profit, up 27% from the same period last year.

Trafigura profit
Soure: Bloomberg

Why should I care?

Zooming in: So long, partner.

Trafigura might be trading less oil soon, mind you: Russia made up around 6% of the company’s business before war broke out, but the trading firm’s since cut most of its ties with the country. That has some major implications: Trafigura’s no longer Russian state-backed Rosneft’s biggest oil trader, and it’s also planning to sell its nearly $2 billion stake in Russia’s Vostok Oil project – the country’s biggest oil development in post-Soviet times.

The bigger picture: More oil, please.

Still, it’s not all bad for Trafigura: it thinks oil could hit new highs later this year, and a laundry list of banks – including Goldman Sachs and JPMorgan – seem to agree. After all, there’s likely to be even more demand next quarter: China – the world’s biggest oil importer – is estimated to use 12% more oil as lockdowns ease, and American “driving season” will be upon us too. That, at a time when supply of the slippery stuff is still too low to keep up.

Oil prices
Source: The Wall Street Journal
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