Soaring commodity prices create winners and losers

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The recent surge in commodity prices has contributed to an inflation acceleration across the globe, creating winners and losers.

Authors: Filippo Cartiglia and Rahil Ram

The recent surge in commodity prices has contributed to an inflation acceleration across the globe.  At the same time, higher commodity prices bring about a change in relative prices across the world economy and therefore their impact is not the same for all countries.  For commodity exporters, such as Canada and Australia, the Terms of Trade (ToT) – the price of exports relative to the price of imports – are improving, making imports cheaper in terms of their output.  But for commodity importers, the reverse is true: their imports are becoming more expensive in terms of domestic output, thereby making these countries relatively poorer.


Indeed, the deterioration of the ToT is having a very significant negative impact on the trade balance – the difference between the value of exports and imports of goods and services – of large commodity importers such as the Eurozone, the United Kingdom and Japan.  As illustrated in the charts below, already in the three months to February – when in fact import prices were still lower than they are at the moment – the trade balance of both the Eurozone and the UK recorded their highest deficit in history.  In Japan the trade balance has swung into a large deficit.

Net commodity importers like the Eurozone, United Kingdom and Japan have seen a marked deterioration in their trade balance.
Source: Bloomberg LLP, Fulcrum Asset Management LLP

For some commodity importing countries, namely smaller emerging countries, for example Sri Lanka at the moment, it is not always possible for a trade deficit to be financed. Nevertheless, for larger developed economies, in the short-term large trade deficits are inevitable, but in the longer term a long-lasting deterioration in the terms of trade will require a more painful real adjustment, involving lower consumption and a diversion of domestic output towards exports needed to pay for now more expensive imports. In such a circumstance, a currency weakening helps the adjustment process by making all imports more expensive and creates incentives to increase exports.

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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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