All commodity prices are now above pre-Covid-19 levels. This is mainly due to pre-pandemic oversupply demand, further declining industrial productivity, supply chain problems, rising shipping costs and incessant demand from China. In the chart below we see the prices on a quarterly basis for WTI Crude Oil, corn, and Lean hogs with the sample starting from December 31, 2019, until September 3, 2021.
by Thanos S. Chonthrogiannis
©The law of intellectual property is prohibited in any way unlawful use/appropriation of this article, with heavy civil and criminal penalties for the infringer. We observe that corn is well above pre-pandemic price levels, and this is partly due to some of the above factors but also to severe weather conditions due to climate change that have drastically reduced the size of global supply in relation to ever-increasing demand. Both the prices of WTI Crude Oil (Nymex) and the prices of Lean hogs are slightly higher than the prices that had Covid-19 levels before the pandemic. However, in some of the goods there is a lack of supply in relation to the demand, with the result that the markets invoice a premium, which looks like a risk premium. The very careful flow of capital invested in the commodities market is a brake on the steady rise in commodities and given that these amounts of capital are much smaller than the amounts of capital invested in bond markets due to the activity of Central Banks in them. EU Carbon emission & Oil prices equally Rising carbon prices in the EU will continue as the EU-Commission on Climate Change targets must be met. The fact that oil prices are rising has to do with the fact that oil companies are reducing their production, and their investment projects in general, and are more interested in their investments in RES. The result of these actions is their limited supply of very low levels of oil relative to a low but higher level of demand relative to their levels of oil supply. Inflation Inflation, and given its positive correlation with commodity prices, is fueled by the steady rise in commodity prices that are rising due to the situations described above. When all these factors are normalized, inflation along with commodity prices is expected to correct downwards. Rising inflation in the Eurozone has led large sections of the German investment community to buy gold in the last quarter to protect themselves against inflation. In the chart below we observe the course of the gold price on a quarterly basis from Q42019 to Q32021. Copper, the price of which is significant for the development of an economy, will continue to grow due to the ever-increasing industrial demand. In the prices of agricultural products, and as mentioned above for corn, the frequency of occurrence of any extreme climatic phenomena that will cause an even greater reduction of their production and supply will have a large degree of configuration. In case of limited production and supply the prices will increase even more. Electricity Gas and carbon dioxide emissions are the main determinants of wholesale electricity prices. Gas has risen close to 92% due to reduced supply from Russia but also reduced EU reserves, where its reserves are used in the summer in industry and not in household consumption with the approach of winter. demand will cause an even greater increase in its price. Policies shifting to green energy production and eliminating the use of coal and oil in electricity generation, further increase the demand for the use of natural gas for electricity generation. Inflation, growth and public debt As the prices of food, production costs, energy, transport respectively increase, and if the above-mentioned situations that fuel them are not normalized, it will make its presence felt, reducing the profitability of companies, and causing problems in the development of economies. If governments manage to cut spending and monetary policy continues to exist with low real interest rates on deposits below the rate of growth of the economy, even with years of inflation surprises but controlled in the long run, public debt will be reduced. in relation to the GDP of the countries through the liquidation of the real value of the public debt (for more information please read the analysis entitled “When Real Interest Rates Are Lower Than Growth Rates Help Reduce Public Debt”)