Global economic growth faced a serious sudden throttle with contradictory consequences, as high energy prices were globally boosting inflation. Logically, low inflation was a serious problem for economic growth in preCOVID-19 years, meaning low consumer and investment demand hampered economic growth.
Unprecedented monetary injections from the world’s major central banks, of which the Federal Reserve was among the first to take action, reversed this trend to a large extent and bailed countries out of economic turmoil. However, inflation seems to be a self-reproduction process that is beyond any control from monetary regulators. Paradoxically, now high inflation has become a throttle rather than a vehicle of economic growth.
An unfavourable rise of commodity prices, mainly energies, along with surging food prices, has played its role too. Severe winter conditions and a stifling summer managed to globally dry out gasoline and crude reserves, while the recovery of energy supplies in regular volumes were inhibited by lockdowns, falling production, disruption of supply chains, etc. Food production was additionally hit by a dry summer and the lack of crops. This created a grim cocktail of unprecedented inflation spikes.
Natural gas is trading on seven-year highs and crude prices are at their highest for the last three years. Business expenses became so large that most of the production is commercially unfeasible, forcing production facilities to shut down. Consumer spending has undermined the demand for durable goods and as a result, the long forgotten slump is seen to be becoming a reality. And, this is not the worst thing, high and rising prices are accompanied by stagnating production.
The situation is really difficult since production could not be facilitated by existing monetary tools of loose monetary policy. On the other hand, tightening of monetary policy would not halt the inflation, as prices rise not due the excessive demand that could be limited by monetary measures, but due to the lack of supply.
Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.
Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72.72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.
© 2011-2021 Teletrade-DJ International Consulting Ltd
Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.
The company operates in accordance with the Markets in Financial Instruments Directive (MiFID).
The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Teletrade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.
TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.
Teletrade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.