Over the weekend two major events took place that might result in higher commodity prices for longer. First was the Israel - Iran showdown that resulted in limited ground impact but it was the first direct attack from Iran soil towards Israel. This has and will put an additional risk premium on crude oil.
Another event was further sanctions on Russia in the form of its major metals like aluminium not being accepted for delivery at Western commodity exchanges like LME and CME. This already resulted in aluminium prices rising by 6% within a day.
Both these events have a large and lingering impact on basic commodities and this might force manufacturers to pass on the rises to consumers. CPI and PPI data released last week were higher than estimates and were led by energy products and home rentals.
The result of three consecutive months of higher inflation was seen in the commentary of Fed Members who still want to see more data before deciding on the rate cut. It was communicated through the meeting minutes released last week as well.
The problem of a higher risk of a spike in inflation might result in pushing back the rate cuts unless labour losses rise over the next two quarters. But there is certainly a consensus reducing the tightening and it might happen before rate cuts.
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