US inflation for February reached a 7.9 per cent annual rate, the highest level since 1982, on the back of a surge in gas, food and housing costs.
Commenting on its rapid growth, Cameron McCormack, VanEck portfolio manager, predicted CPI could potentially pass 9 per cent in the following months as the broader implications of the sanctions against Russia materialise.
“Stagflation is a now possibility – rising costs against stagnant economic growth. Investors need to prepare for this scenario,” Mr McCormack said.
“With oil briefly passing US$125 a barrel this week for the first time since 2008 and UK gas price futures jumping 39 per cent since Russia invaded Ukraine, we may see global economic growth slow to a crawl in the coming year as the prices of commodities and other basic goods climbs in response to stronger demand and supply constraints,” he continued.
Reflecting on the local environment, Mr McCormack said the situation in the US may force the Reserve Bank’s hand and “we could see a first rate rise before August 2022”.
“With no signs of the geopolitical tensions abating soon, Australian resource companies are well positioned to benefit from elevated commodity prices,” Mr McCormack predicted.
“Australia is a major exporter of liquefied natural gas (LNG) and iron ore prices have also reached a six-month high, buoyed by growing hopes of improved demand in China with National People’s Congress (NPC) setting a 5.5 per cent GDP growth target for 2022. Higher prices equate to stronger company earnings.”
Earlier this month, Federal Reserve chair Jerome Powell said he’s inclined to support a 25 basis point rate hike at the next meeting.
“I do think it will be appropriate to raise our target range for the federal funds rate at the March meeting,” Mr Powell said.
“I am inclined to propose and support a 25 basis point rate hike.”
