PHOTO
The cost of goods and services in several markets around the world is rising again following a period of pause or decline due to the coronavirus pandemic, thanks to rising oil prices, according to a new analysis.
Oil prices, which fell below zero at the onset of the pandemic last year, have increased recently, hitting above $65 per barrel in April. The last time oil was trading at $65 was in 2018 or 2019.
“Higher oil prices are a main driver of the recent uptick in headline CPI inflation gauges around the world,” Moody’s said in a report released on Wednesday.
Headline CPI inflation across advanced and emerging market economies have risen, along with the cost of food and other consumer goods, such as clothing, footwear, as well as airfare.
“Prices of food and agricultural commodities – such as soybeans, corn, wheat and hogs – have also risen in the last month,” Moody’s noted.
$45 to $5 per barrel
“Additionally, the normalization of prices of several semi-durable goods and services is also pushing up inflation in several countries… In emerging market countries, another factor contributing to headline inflation is pass-through from currency depreciation,” the global rating agency said.
Within the Gulf region, Saudi Arabia posted a 5.2 percent inflation rate in February 2021, up from just 1.1 percent in May last year, shortly before the global lockdown was implemented. The picture is slightly different in the UAE, where consumer price index declined by 2.01 percent during the same month, although the latest data in the property market suggest rising home prices.
Moody’s expects oil to continue moving higher as global consumption will go up on the back of greater demand for travel due to high vaccination rates. Spot price for Brent is seen to average $65 per barrel in 2021 and $60 per barrel in 2022.
“Our macroeconomic forecasts incorporate the assumption that OPEC+ producers will release supply commensurately, so that oil prices eventually settle around the midpoint of our $45 to $65 per barrel range,” said Moody’s.
Inflation
However, inflation data is expected to fluctuate sharply in the coming months. This is because commodity prices, supply bottlenecks and surges in demand can cause unpredictable moves in subcategories of goods and services.
“However, most of these inflation drivers are transitory. Even in the case of price increases when pent-up demand for in-person services outstrips relatively inelastic supply, intensity of price increases will ebb once demand starts to normalize in a few months,” said Moody’s
(Reporting by Cleofe Maceda; editing by Seban Scaria)
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
© ZAWYA 2021
