Global inflation is set to rise again due to higher global commodity prices, competitive devaluations (imported inflation), and, to a lesser extent, rising real estate prices.
The primary driver of this trend is undoubtedly the increase in global commodity prices that began at the start of the summer (+2.3% in September 2016 compared to September 2015).
The price of oil, which plays a crucial role in calculating inflation, has risen about 55% from its lowest point last January. This upward trend is expected to continue in the coming months, as the decrease in investment in oil activity over the past few years will eventually weigh on oil production.
In addition, there is the ongoing prospect of an OPEC agreement regarding production levels. The success of Saudi Arabia’s first international bond issuance two weeks ago (the country managed to raise $17.5 billion) could encourage the country to cooperate to limit the price war in the oil market, having found a new (and profitable) solution to inject liquidity into the system. This aspect could favor the conclusion of a sustainable oil agreement likely to lead to an increase in inflation.
In the eurozone, oil prices are inevitably likely to push the HICP upwards. As we know, the inflation curve in the eurozone has historically been strongly linked to the annual fluctuations in oil prices.
If inflation were perfectly correlated with the price of oil, which is of course not the case, it would increase to about 2.3% next year considering a price of $60 per barrel. Although it is reasonable to think that inflation will not reach this level, it is following a clear upward trend. Even imagining a drop in the price of oil to $40 per barrel, inflation should still show a significant rise next year.
