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21.03.202207:14 Forex Analysis & Reviews: Inflation in US to accelerate throughout 2022

Exchange Rates 21.03.2022 analysis

Last week, the US Federal Reserve raised interest rates for the first time since 2018. The decision was made to tame galloping inflation in the country. Consumer prices are now at 7.9% and the rate is likely to continue soaring, according to analysts as well as the Fed itself. In other words, one or two rate hikes will not be able to positively affect consumer prices. Experts see inflation surging further due to current energy and commodity issues as their prices are now on the rise. Oil increased to $130 a barrel, pulled back to $95, retraced up, and tested the $108 mark. No one has seen it coming, especially given the fact that crude traded at $0 a barrel two years ago. Gas prices somewhat decreased compared to October 2021 when they hit $6,300 a 1,000 cubic meters. Today, natural gas costs about $5,000 a 1,000 cubic meters.

Rising energy prices will affect inflation just as slowly as the Federal Reserve's tightening does. Simply put, oil prices have doubled in a few months, while inflation under the influence of this factor could grow for 6 months to a year. This becomes possible due to the fact that oil futures contracts usually trade for delivery several years in advance and at fixed prices. In other words, the fact that crude now costs $108 a barrel does not mean it is bought at the same price. So, it is now about the contracts signed when oil tarded at $60-$70 a barrel. New contracts will be concluded sooner or later, and already at some $110 a barrel. Generally speaking, growing energy prices will be weighing on inflation for a long time to come.

Above all else, the eurozone is now facing energy and food crises as it buys energy in Russia and food in Ukraine. Any crisis is a redistribution and redirection of capital from one asset to another. Therefore, recent market jitters are to repeat in the future. Inflation will keep growing both in the eurozone and the United States. However, unlike the eurozone where they seem to do nothing about it, monetary policy tools used in the United States will become efficacious in some 8-9 months.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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