17/03/2022

Inflation was already accelerating before Ukraine invasion

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Introduction

Inflation was already accelerating before the disruptions caused by the invasion of Ukraine

Authors: Filippo Cartiglia & Rahil Ram

February was a month where we needed to appreciate the humanity of events unfolding alongside our cold objective analysis of financial and market impacts. As the invasion of Ukraine began on February 24th, the February CPI data gave a good snapshot of inflation dynamics just before the beginning of the war. Worryingly, they show that consumer prices were already accelerating both in the US and in the Eurozone, contrary to the Fed and the ECB expectations.

In the US, CPI inflation reached 7.9% YoY, up from 7.5% YoY in January. Core inflation (which excludes food and energy and is a better indicator of underlying pressures) was 6.4% YoY, up from 6.0% YoY in January; on an annualised seasonal adjusted basis it was 6.9% in the three months to February relative to the previous three months, up from 4.3% in the three months to November relative to the previous three months.

In the Eurozone, CPI inflation rose to 5.8% YoY, up from 5.1% in January. Core inflation was 2.7% YoY, up from 2.3% YoY in January; on a seasonally adjusted annualised basis, it was 3.9% in the three months to February, up from 2.5% in the 3 months to November.

Making the task ahead for the central banks even more difficult since February 23rd commodity prices have surged. For example, both WTI oil in USD terms and Brent oil in EUR terms are up by about 10%. The Bloomberg Commodity Spot Index – a weighted average of 37 individual spot commodity prices – had increased by 10.2% as of March 11th.

Prices have been increasing before Ukraine invasion.

Source: Bloomberg LLP, Fulcrum Asset Management LLP

Prices have been increasing before Ukraine invasion.

Source: Bloomberg LLP, Fulcrum Asset Management LLP

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About the Author

Filippo Cartiglia

Filippo is a member of the Investment Team. Before joining Fulcrum in 2020, he was the chief economist at Arrowgrass Capital Partners LLP. Prior to this, Filippo was Managing Director at Goldman Sachs, partner at Newman Ragazzi LLP, and an economist at the International Monetary Fund in Washington. Filippo graduated from Bocconi University in Milan in 1988 and gained a PhD in Economics from Columbia University in New York in 1992.

About the Author

Rahil Ram

Rahil Ram is a Director at Fulcrum Asset Management and is involved in portfolio strategy, portfolio implementation, research, sustainability and idea generation for the discretionary macro and thematic strategies. Prior to joining Fulcrum, Rahil was a strategist within the Asset Allocation team at Legal & General Investment Management for five years, during which time he completed his Masters’ in Actuarial Management from Cass Business School and qualified as an Actuary in 2017.

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