Brent crude has reached a 10-month high around $95 a barrel as export curbs by Saudi Arabia and Russia combined with an improving outlook for the US and China to drive prices higher.
Just as global monetary policy switches toward high-altitude cruise control, another bout of turbulence is bearing down on the world economy with surging oil prices.
For central bankers, such commodity spikes can be an immediate red flag. International Monetary Fund staff, in a new paper looking at over 100 inflation shocks since the 1970s, found that only in about 60% of cases did consumer-price growth durably slow within five years. Two-year Treasury yields are up more than 30 basis points since the start of the month, and are trading near a 16-year high seen in July. Yields across the German curve have edged up about 25 basis points this month alone, leaving the 10-year tenor close to the highest level since 2011.
Last week, the European Central Bank signalled a pause after a close-run decision to raise rates again — a move that its former chief economist, Peter Praet, immediately linked to rising crude. Growth risks The risks go both ways. Highlighting that dual danger, the Bank of Spain on Tuesday warned that inflation will be faster than it had anticipated this year and next because of costlier crude, while economic expansion will be weaker too.
Taxes in Europe mean that there’s less sensitivity to cost changes there than in the US. Last year, the pump cost of gasoline in Germany and the UK was roughly double that of the US.
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