Concern about stagflation, where growth falls & prices rise

The soaring cost of oil and other key commodities in the wake of the invasion threatens to unleash another bout of damaging inflation and supply shortages on the global economy, The Guardian reported.

The price of benchmark Brent crude oil added another 3.4 per cent in early trade on Thursday to climb to $116.80.

The cost of other crucial commodities such as aluminium (2.62 per cent), iron ore (7.75 per cent), copper (1.6 per cent) and wheat (7 per cent) were also on an upward curve, thanks to tighter supplies but also bulk buying by the Chinese government, according to analysts.

Tina Teng, markets analyst at CMC Markets in Sydney, said commodity prices would keep rising, The Guardian reported.

The Russia-Ukraine war has been pumping up global commodity prices, not only because of the supply disruption, but also resulting from hedging activities. Markets have priced in for a much tighter oil supply, with oil tankers and shippers in a standoff for Russia’s exports. China has also ordered the state-owned buyers to store major commodities, including oil, gas, iron ore and agriculture products. Crude oil futures are heading toward $US120 a barrel.

There was also concern about stagflation, where growth falls and prices rise. Shane Oliver, head of investment strategy at fund manager AMP in Sydney, said:

Russia supplies around 30 per cent of Europe’s gas and oil imports and accounts for around 11 per cent of world oil production. In short, investors are worried about a stagflationary shock,” The Guardian reported.

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