Economists, analysts and market participants are laser-focused on the Labor Department’s CPI (Consumer Price Index) report for June, which will be released on Wednesday, July 13. The advanced forecasts that have been published have a common theme or consensus, and that is that inflation will continue to run very hot. Expectations are that headline inflation, which includes changes in food and energy costs, rose 1.4% from the previous month and will rise to 8.7% year-on-year. The US Federal Reserve, and to a lesser extent central banks around the world, have started raising interest rates in an attempt to reduce the rising level of inflation. However, it is a known fact and recognized by the Federal Reserve that no matter how aggressive central banks tighten their monetary policy by raising interest rates and reducing the money supply, this will in no way shape or stop measured inflation from become persistent. For too long, the United States government has looked to the Federal Reserve to be the only component under pressure to deal with inflation. This is a shallow solution to an extremely complex economic problem. Furthermore, governments around the world are aware of the fact that rising interest rates will shrink demand for non-essential goods and services. It does not address the reduction in the cost of daily necessities such as food and energy. The rising level of inflation started from the accumulated demand as the pandemic ended the most serious stage for the global citizens. By June 2021 the consumer price index was already high above 5%. Supply chain bottlenecks resulting from pent-up demand from global citizens pushed inflation to 7.5% in January. As these supply chain issues began to play out in February, Russia attacked Ukraine. The Russia-Ukraine conflict has had a dramatic impact on global inflation. This conflict has choked the supply of agricultural exports from these two countries and fertilizer from Russia, raising food costs worldwide. However, it is the free world’s addiction to Russian oil and Russian fertilizers that has had a profound effect on food and energy costs The Russian invasion of Ukraine has significantly increased the risk of disruptions to global exports of fertilizers and oil from Russia. This conflict had a huge impact on the price of oil. Because Russia is the second largest oil exporter, it has driven the cost of crude oil to move above $100 a barrel. Russia is the largest exporter of fertilizers in the world. They account for 23% of ammonia exports, 14% of urea exports, 10% of process phosphates and 21% of potential exports. This results from data from the Fertilizer Institute. High oil and fertilizer costs have had the biggest impact on food production worldwide. The biggest spikes in inflation were in food and energy costs. Therefore, it makes sense to recognize that in order to bring inflation to acceptable levels we must deal with the Russia-Ukraine war and realize that without a resolution of this conflict we will not reduce inflation to an acceptable level. For those who want more information just use this link. I wish you as always good trading,
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