Pro Perspectives 2/16/22
February 16, 2022
China's inflation data overnight came in softer than expected. But the producer price change from last year is still running at over 9%.
Meanwhile, curiously, the consumer prices in China are reported to have risen less than 1%.
How is that possible?
As an example, the Chinese government intervened in the domestic iron ore market last summer. Iron prices had more than doubled from pre-covid levels. The government stepped in, with "investigations" and "inspections" into producers and speculators. The price of domestically produced iron ore (in China) did this …
The Chinese government intervened in the domestic coal market in late October. Coal prices had tripled over the prior twelve-months. Coal prices did this …
You may recall, we talked about all of this late last year, and asked the question: Would Biden follow the Chinese playbook to respond to hot U.S. inflation (i.e. go the route of price controls)?
He's already alleged price gouging from the domestic oil and gas industry and (similarly) called for an "investigation" into U.S. producers (for the audacity of making wider profit margins on higher prices, which is now controlled by OPEC).
Yesterday, Biden said he would be "coordinating" with major energy consumers and producers, and will be "prepared to deploy all the tools and authority at his disposal to provide relief at the gas pump."
These "tools" may come in the form of some sort of subsidy, at some point, but a subsidy would sustain the demand dynamic for oil. Apply that to a world that is undersupplied and underinvested in new supply, and the price of oil will continue to rise.