The article in brief
● The war in the Middle East could lead to higher prices for food, electricity and electronics.
● Disruptions in the export of raw materials such as sulfur and aluminum affect production and transport.
● Uncertainty is high and experts warn that inflation could pick up speed again.
Higher electricity and food prices contributed to inflation in February, but food price increases moderated compared to previous months. This is shown by the detailed statistics from Statistics Sweden published on Thursday morning.
Overall, it was confirmed that the inflation rate according to the CPI ended up at 0.5 percent, with lower interest costs in particular helping to compensate for more expensive electricity and food costs. According to the CPIF, the measure that forms the basis for the 2 percent inflation target, inflation was 1.7 percent.
But the Iran war looks The aim is to put an end to the inflation trend and thus to the expectations of the central banks. Although most analysts expect the key interest rate to remain unchanged when the Riksbank makes a rate announcement next week, pricing around key interest rates in the rest of the world has offered sharp turns this week in line with volatile movements in oil prices.
The threat of a renewed rise in inflation has fueled speculation that several central banks may need to raise their key interest rates later this year. ECB member Peter Kazimir warned this week that a rate hike could come later in the spring or early summer.
“I would say that a reaction from the ECB may be closer than many people think,” he said in an interview with the Bloomberg news agency on Tuesday.
One reason for concern is that higher energy prices could fuel inflation elsewhere, not least in food production. Among other things, European vegetable prices could gain momentum as natural gas is used to heat greenhouses on the continent before spring sowing.
That produced oil The Middle East produces large amounts of sulfur, which is mainly used to produce fertilizers. Sulfur from gas production in Qatar and the United Arab Emirates, for example, is mainly exported to Asia, where it is used to make fertilizers. In the Chinese market, the price of sulfur has now reached the peak of the 2021-2022 inflation shock.
Sulfur is also used in the production of copper and cobalt, among other things. About 90 percent of the sulfur imported into the copper belt in southern Africa comes from the Middle East.
The widespread disruptions in the Middle East also threaten to impact the production of semiconductors, components now used in almost all modern electronic devices. Semiconductor producers use, among other things, sulfuric acid, but also helium and bromine – two inputs of which Qatar and Israel are important suppliers to the Asian semiconductor sector.
In addition to oil, also gas and by-products such as sulfur, the Strait of Hormuz is an important hub for the logistics of several other raw materials. Nearly a tenth of global aluminum production occurs in the Persian Gulf, and exports from the region account for a larger share of global trade in the metal, which is used in industrial manufacturing from vehicles and machinery to electronics and packaging.
According to Amin Nasser, CEO of Saudi oil giant Saudi Aramco, the crisis risks triggering a chain reaction with higher energy prices spilling over into the transport sector, food production and industry.
– It will have catastrophic consequences for the global oil market. The longer the disruption lasts, the more drastic the consequences for the global economy will be, he said in a conference call with investors.
Others still hope for limited effects. Nordea currently expects the war in the Middle East to increase Swedish inflation by 0.5 percentage points, according to CPIF.
“So far, the direct impact is not that drastic and the increase is starting from a low starting point. But the uncertainty is high,” wrote chief analyst Torbjörn Isaksson in a brief comment on Thursday’s inflation figures.
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