Bottleneck

Bottleneck

There is evidence that some of the bottlenecks that were generating price increases are easing and justifying concern about a rebound in inflationary pressures. A recent document prepared by officials of the Bank for International Settlements, “the bank of central banks,” concluded that the effect of these bottlenecks “on inflation will probably be temporary”.

For example, energy prices are highly inflationary and oil prices last week exceeded $ 70 a barrel. However, over the weekend, members of the Organization of the Petroleum Exporting Countries (OPEC) and some non-members, led by Russia, agreed to gradually increase production, to restore the cuts made during the pandemic. The deal will increase production by 400,000 barrels a day on a monthly basis, through the end of 2022. Over the weekend, just the expectation that a deal could be reached pushed crude prices to around $ 65 a barrel.

Similar price reductions are anticipated in other commodities, despite vigorous demand in China, the United States and other advanced economies. In contrast to the prominence it assumed in 2008 during the aftermath of the Great Recession, this time China is liquidating some state reserve inventories of various raw materials, such as aluminum, copper and zinc, to moderate price increases. On July 6, the National Development and Reform Commission, in charge of China’s raw material reserves, stated “We will continue to organize the liquidation of inventories in the near future to ensure the stable operation of the market.” (The Wall Street Journal July 19, 2021).

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