Global inflation is about to spike due to higher worldwide commodity prices, competitive devaluations (imported inflation) and, to a lesser extent, increasing property prices, said an industry expert.

The main driver of inflation is, without doubt, higher global commodity prices that have started to rise since the beginning of the summer (+2.3 per cent in September compared to September 2015), added Christopher Dembik, head of Macro Analysis at Saxo Bank, a leading multi-asset trading and investment specialist.

Oil prices, which play a key role in the calculation of inflation, rose by almost 55 per cent since its lowest point reached last January. This increase is expected to continue in the coming months, due to declining investment in the oil sector in recent years that will eventually weight on production capacity, and the possibility of Opec agreement regarding the level of production.

The success of Saudi Arabia’s first international bond sale two weeks ago (the country raised $17.5 billion) could push the country to cooperate to reduce market flooding since it found a new (cheap) way to bring money into the system. If so, it could open the door to a sustainable oil agreement that could result in higher inflation.

Middle-East: Door open to further easing in Turkey
 
Contrary to market expectations, the Turkish central bank has maintained interest rate unchanged in October despite September inflation figures better than forecasted (CPI reached 0.18 per cent versus 0.70 per cent according to the consensus).

The status quo is directly linked to the strengthening of the US dollar, which increases capital outflows, and Moody’s decision to cut the country’s credit rating to “junk”. However, this is only a matter of time before the central bank acts again.

The weak GDP growth expected in Q3, caused by the failed coup and long public holiday that occurred in September, and lower inflation compared to previous years should trigger a new action of the central bank in November. One more moving around the corridor is possible (consisting in a new cut in the upper band) before a repo rate cut (currently sets at 7.5 per cent). – TradeArabia News Service