In Meristem’s expectation for August, we recounted how global food prices rose to a 7-month high in August and higher energy prices stimulating inflation.
However, in September, we saw that while seasonality factors (onset of Autumn) and buying interests kept food prices elevated, new headwinds in the international oil market triggered a depression of aggregate prices in many climes. Consequently, Eurostat expects inflation in the Euro Area to decline further to -0.30% YoY in September (vs -0.2% YoY in August and 0.4% YoY in July).
In the United States, although personal consumption expenditure (+1.0% in August) – largely on food services, accommodation and healthcare, would spur some upward price movements, like most of the advanced markets, expectations are that the slip in energy prices would taper the inflationary pressure.
Crude oil prices on the last day of September declined by 956bps from USD45.28 in August to USD40.95. This reflected the breach in the OPEC+ quota by the United Arab Emirates, a resumption of oil production in Libya and slower demand from the world’s largest oil importer, China.
Although some of our worries on the prospects of oil prices have begun to crystallize (worries on China’s stockpile of crude in previous months), we still hold that a sustained rebalancing of the oil markets would depend on a COVID-19 medical breakthrough and stricter compliance with OPEC+ production quotas.