Energy rips higher
The previously unloved Energy ETF is continuing to deliver blistering returns, the price rising 58 per cent over the past six months, and tripling from the 2020 lows.
It's been a remarkable turnaround from negative oil prices, to over $100/barrel.
In related news, the U.S. inflation rate came in on expectations overnight, at 7.9 per cent.
Rents continued to surge, and food price pressures are being felt around the world.
Australia has a somewhat different inflation profile, and pressures have generally been less acute to date, with a headline inflation rate of 3½ per cent (while Japan and China have very low official inflation rates).
The underlying inflation rate in Australia over the year to December was lower, and within the target range, at 2.6 per cent.
It's the first time in seven years that underlying inflation has been above the mid-point of the band of 2½ per cent.
The difference in Australia is partly derived because household gas and electricity prices haven't increased as much in Australia as they have in the United States, according to the Reserve Bank.
Goods inflation in Australia has increased, but nothing like to the same extent as in the United States, and the same is true for wages inflation, notes the RBA.
In fact, wages growth in Australia was still relatively soft, on the most recent official measures.
The assumption had been that the supply-side issues would be resolved in 2022, but the war in Ukraine is now casting doubt on how quickly that might be the case.
This new shock is pushing the prices of commodities higher, and in some cases much higher.
We have some supply issues in Australia to contend with domestically, as flooding has impacted many parts of Queensland and New South Wales.
The wrap
Geopolitical tensions have changed the inflation outlook, and now focus turns to central banks to see how much they are prepared to bear before acting more decisively.
The RBA in Australia stresses that it has time to assess new information, but also conceded that it's plausible rates could rise later in 2022.
