Inflation to fall dramatically?

FANTANA said:
Gasoline has not been hit as badly as far less of it came from Russia, but keep in mind when you refine different products from crude you can change the ratios slightly but you can’t just say I want loads of diesel and no Gasoilne,
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yes not many people understand that but if every barrel of oil is refined into its different grades anyway and that doesn't change, why would the refining costs of diesel. petrol gasoline be different and variable ? Surely the cost of refining should go up and down equally between diesel and petrol etc because when you refine diesel you also get petrol gasoline etc.

It also shows how stupid the policy of encouraging the purchase of diesel cars over petrol was back in 2008. Traditionally light passenger vehicles were always powered by petrol and heavy trucks, commercial vehicles and agricultural equipment by diesel, therefore there was always a stable equilibrium. Another factor with passenger vehicles getting diesel engines is that it allowed these vehicles get much bigger and now the proliferation of SUVs that consume alot of fuel and are too big for parking spaces
 
joe sod said:
yes not many people understand that but if every barrel of oil is refined into its different grades anyway and that doesn't change, why would the refining costs of diesel. petrol gasoline be different and variable ? Surely the cost of refining should go up and down equally between diesel and petrol etc because when you refine diesel you also get petrol gasoline etc.

It also shows how stupid the policy of encouraging the purchase of diesel cars over petrol was back in 2008. Traditionally light passenger vehicles were always powered by petrol and heavy trucks, commercial vehicles and agricultural equipment by diesel, therefore there was always a stable equilibrium. Another factor with passenger vehicles getting diesel engines is that it allowed these vehicles get much bigger and now the proliferation of SUVs that consume alot of fuel and are too big for parking spaces
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This article explains it better than I can. Supply and demand is a huge factor for refineries margins.

 
"Available refining capacity has shrunk. A wave of wholesale decommissioning and conversion to bioprocessing during the pandemic was followed by fires, explosions and malfunctions this year as refiners tried to maximise middle distillate output under heatwave conditions."

Yes a good explanation, so refining capacity was decomissioned and converted to bioprocessing during Covid in Europe !! therefore Covid lockdowns also indirectly responsible to an extent. I remember the narrative at the time in 2020 when the oil price collapsed with collapsing demand that this was the transition away from fossil fuels happening, maybe the refiners and oil companies also bought into this judging from what happened.

Is this another factor causing Putin to invade Ukraine , he saw that Europe was already highly dependant on russian gas and then as the lockdowns ended the demand for russian diesel also surged as Europe had also reduced its own refining capacity??
Im not saying it was decisive but surely governments in Europe should have been taking measures to maintain refining capacity during the lockdowns, did they actually believe all the hype that the drop in fossil fuel demand was permament?
 
There's an inverted Bond yield curve in the US. The biggest since 1981.
In my opinion that shows:
  • The market thinks interest rates will increase more in the short term. That is a reaction to US economy is still adding jobs, showing that inflation is still not under control.

  • It turns out that there might just be a link between labour and capital values and so spending a decade and a half printing money at unprecedented levels causes labour price inflation. Who knew...

  • We can either massively increase wages or reduce capital values (the price of capital items). That's high inflation or high interest rates and Bond buy-backs.
 
Purple said:
There's an inverted Bond yield curve in the US. The biggest since 1981.
In my opinion that shows:
  • The market thinks interest rates will increase more in the short term. That is a reaction to US economy is still adding jobs, showing that inflation is still not under control.
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I don't get this. I would have said the opposite !

The inverted yield curve results from investors piling in to long dated bonds thus driving down long range yields. They do this to lock in returns because they expect short term rates to fall.
 
demoivre said:
I don't get this. I would have said the opposite !

The inverted yield curve results from investors piling in to long dated bonds thus driving down long range yields. They do this to lock in returns because they expect short term rates to fall.
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The inverted bond curve is a sign that the market thinks there's going to be a recession and so there is a flight to safe investments. That means that interest rates will fall in the longer term (the next year or so) but in the short term they will increase due to the need to counter the inflation caused by QE.
 
Purple said:
The inverted bond curve is a sign that the market thinks there's going to be a recession and so there is a flight to safe investments. That means that interest rates will fall in the longer term (the next year or so) but in the short term they will increase due to the need to counter the inflation caused by QE.
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If the expectation were for short term interest rates to rise then investors would wait and buy the short dated bonds to get the higher returns !
 
demoivre said:
If the expectation were for short term interest rates to rise then investors would wait and buy the short dated bonds to get the higher returns !
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Not the interest rates on bonds, central bank rates. Sorry, my post was badly worded and totally confusing.
 
peemac said:
The premise of the thread was that some in the ECB, and particularly Philip Lane, may persuade other members to hold back on going too high on interest rates to allow for the current increases to take effect and also take note that input costs will start dropping.

Some financial commentators are now suggesting that there will be just one further 0.5% rate hike before the ECB takes a pause.
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I think Philip Lane's influence on the ECB is well and truly gone, fighting inflation and raising interest rate is now the predominant policy. The ECB was too late in starting to raise rates and they need to watch the exchange rate with the dollar which is now going in the right direction and a key reason why fuel prices have dropped lately. The ultra low interest rates were a key factor in stoking inflation and getting it burning again
 
Christine Lagarde has said that Eurozone inflation will continue to be high into next year and warned the markets that there'll be another 0.5% rise in February and probably more after that.
US rates are twice as high as the Eurozone. That makes the low Eurozone rate unsustainable. It will have to move closer to the US rate.
 
The FT is reporting that core inflation is continuing to rise in most of the 33 economies that they track. The FED have increased their forecasted rate of core inflation for next year from 3.1% to 3.5%.
 
Yes it may have eased back lately with energy prices falling back but the follow through inflation from those higher energy prices is now only working its way down to goods and services as new contracts for higher energy prices are completed.

We saw yesterday in the UK some of the biggest public sector marches and strikes since the 70s looking for pay rises, very similar to what happened in the 70s inflation spiral, however irish public sector employees on much larger salaries than their UK counterparts
 
The deflationary effect of a billion Chinese entering the labour market and information technology and automation improving productivity negated the inflationary effect of cheap money over the last few decades but those factors have washed through the market now.
Interesting times ahead.
 
The Economist magazine points to the impact China's reopening this year will have on inflation. They say it will drive up commodity and energy prices which will stoke inflation and so keep interest rates high. T'is a good point!
 
On a more optimistic note maybe China won't have as big an impact on commodity prices in that they now have a forced seller, Russia . The west is barred from buying Russian energy and commodities and China has great bargaining power now with Russia. Once the Chinese factories go back into full production it will ease somewhat the supply chain bottle necks.
The main issue is labour shortages after the pandemic they need to get people back into jobs working
 
Natural gas prices continue to drop and that will feed into other energy products especially coal and diesel as gas is now substantially cheaper than both.

Of course many will be tied into forward contracts for another few months, but it bodes very well for very substantial reductions in gas, electricity, coal and KERO for next winter if the trend continues.
 
Diesel probably be going up in price due to price caps on refined oil products from Russia, they reckon that the diesel will be transported to India and then re exported to Europe at higher price due to the increased transportation costs and margin, the idea is to deny Russia the increased revenue even if it means Europe ultimately pays more .
The only good thing is it might scupper the governments plan to reverse the reduction in excise on diesel and petrol in february, if diesel is going back up in price it will be very difficult for the government to increase the excise taxes again
 
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