Inflation Ahoy (?)

Ever since QE was invented, some folks have been predicting inflation and others deflation.  Anyhow, back in January I commented (BTL here) that energy prices were stirring, led by gas and the Far East’s insatiable demand for LNG cargos that would otherwise be available for Europe.  

A very mild March dampened this down a bit, but it’s roaring away now, to the extent that this week, forward prices for this coming summer in Europe are only a fraction below forwards for next winter.  You might guess that is quite unusual for a very seasonal commodity like gas.  You’d be right: it’s really remarkable.  (BTW, the fact that next winter’s price is relatively low doesn’t represent any kind of comfort that easier times are ahead.  Say after me: “a forward curve is not a forecast …”)

What’s going on?  (a) Absolute demand, especially in the east; (b) Russia / Gazprom is playing silly-buggers, holding back supply capacity they could easily fill.  Why?  Because the are reminding the Germans, none too subtly, of where their energy comes from, pressuring them to resist US sanctions on Nord Stream 2.

The prices of oil, coal and carbon allowances are steaming ahead, too (and therefore electricity).  Is this destined to continue?  Well, Russian tantrums come and go, so the parochial matter of European gas supply can ease at the drop of a hat.  And the dreadful situation in India suggests that Covid may yet bring GDP-wrecking times ahead, offsetting the strong Asian bounceback from a year ago.  So who knows?

But when Biden’s trillions start hitting the economy, on top of China’s regular growth, the demand for steel and concrete should boom.  Covid vs Concrete … who knows?  You thoughts invited below –

ND