A financial professional, Chuck (Atsushi) Kawakami (pictured) recently reported on the current  inflation concerns in the U.S. market.  MIRUPLUS pick up his analysis as follows;

With the U.S. market taking the lead, inflation concerns have risen, and at the same time, dollar interest rates have risen, centered on 10-year government bonds. Interest rates in Europe and elsewhere have also risen to a slight drag. Increased corona vaccine vaccination and USD 1.9 trillion additional fiscal measures have changed the market optimistically. In fact, the U.S. consumer prices also rose sharply in April compared to last year's decline.

Crude oil prices have contributed significantly to this. OPEC Plus's production cuts are working well. Moreover, rigs such as shale oil, whose average profitability is said to be $ 45 / barrel on a WTI basis, have not yet increased rapidly. Crude oil supply and demand will not ease unless the number of operating rigs reaches a certain level. Even with the EIA outlook, it will take a little longer. If the supply-demand balance settles down, as the EIA predicts, the steady state will be around $ 55, which is about $ 10 cheaper on a WTI basis than the current situation.

The high crude oil price has spread to various fields and is pushing up consumer prices. Not to mention chemicals, rising crude oil prices will also improve the profitability of biofuels. Increased production of biofuels is pushing up the prices of plant energy sources such as grains, which are the raw materials. In addition, grain prices are extremely high due to feed demand and the recovery from classical swine fever in China. Demand for semiconductors and clean energy is also pushing up prices for mineral resources such as copper.

These factors are the immediate movements, but with the passage of time, the movement of crude oil prices should also calm the prices due to the increase in production of shale oil in the United States, the supply of non-OPEC. Unless the destruction of large-scale oil facilities in the Middle East etc, the rise in crude oil prices will not last long.

In terms of demand, there is no guarantee that employment will return to normal, especially in developed countries. Rather, it seems that Corona has become more oriented toward optimal allocation of human resources in terms of productivity, personnel efficiency, etc., as an opportunity to review business processes, and it is unlikely that employment will return to norm as in 2019.

Employment recovery is likely to be marginal, which disappoints current expectations of growing demand. In fact, looking at U.S. wages, April was only a 1.15% increase over the previous year. Low-wage workers have been laid off, and the year-on-year wage comparison has been statistically high for a while, but the factors have finally subsided and the actual situation is becoming apparent. The current "inflationary frenzy" will eventually subside.

Chuck (Atsushi) Kawakami

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