(Kitco News) Rising commodity prices, especially record food spikes, are increasing the risk of a recession, Bloomberg Intelligence has warned.
In response to the ongoing war in Ukraine following the large-scale invasion of Russia, commodities staged a massive rally. And commodity increases feed through to food prices, heightening concerns about future inflation expectations.
Wheat prices rose to 14-year highs on Monday as the impact of war in Ukraine weighed on supply issues.
Russia is the world’s largest wheat exporter, with buyers looking for alternative options due to financial sanctions introduced against Russia. Russia and Ukraine account for nearly 30% of world wheat exports and 19% of corn exports.
These food increases could fuel inflation, which has already hit 40-year highs in the United States, and could trigger serious recessionary problems, said Mike McGlone, senior commodities strategist at Bloomberg Intelligence.
“Soaring wheat prices indicate that the end of 2022 could remind us a lot of 2008, as the rapid rise in commodities – especially food – puts pressure on consumer sentiment and increases the threat of recession,” McGlone said Monday. “The return to excesses of 2021 could be a major theme of 2022. The commodity boom and war could simply fuel the potential retracement of risky assets.”
The United Nations food price index hit a record high, rising nearly 4% in February, just as Russia’s assault on Ukraine was beginning.
“The food price index, which tracks international prices for items such as vegetable oils and dairy products, averaged 140.7 points last month, nearly 4% higher than in January.” , the UN said.
Before the war in Ukraine, the United Nations cost index was already close to its 2011 peak. “Concerns over the state of crops and sufficient supplies for export explain only part of the current increases global food prices,” Upali Galketi Aratchilage, an economist at the Food and Agriculture Organization of the United Nations, said in a report. “A much bigger push in food price inflation is coming from outside of food production, particularly from the energy, fertilizer and feed sectors.”
Bloomberg Intelligence said it sees similar patterns developing by early 2008 and the financial crisis.
“There are no better ways to deter consumers than by rapidly increasing food prices, and what is different from 2008 – the Russian invasion of Ukraine – may have bigger implications for consumers. risk assets. About 14 years ago, wheat first broke down to $12, and the outcome of that high-priced cure has parallels with now,” McGlone said. “The financial crisis 2008 is the most relevant example when the benchmark wheat future peaked around $13 a bushel and then fell to around $6. We see parallels in 2022, but expect grains to be the most shielded from the risks of crippled demand due to war. -related recession.”
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