Moneycontrol Pro Panorama | Surging prices present fresh challenge to central banks’ money policy

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Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

In recent months, occasionally the demon of inflation raises its head and sends investors scattering for cover. This week seems to be one such. After technology stocks got walloped earlier this week and singed the Nasdaq, the Dow got a mild whipping on Wednesday. While local bourses were down today also, how much of that is due to what’s happening to global equities and how much is due to fears of when the second wave will subside is not clear.

The US Federal Reserve continues to reassure investors that it is in no hurry to increase interest rates.  US Fed governor Lael Brainard said on Tuesday that any move to limit support to the economy because asset prices were inflated would hurt the weaker sections of society. Despite all the support being provided, America’s unemployment data remains a source of concern for officials.

While there is some talk that the benefits given to the unemployed is discouraging people from looking for work, the Fed is not buying that simplistic argument, stating there are other factors that could be at play such as child care, closed schools, slowing pace of vaccinations and supply bottlenecks affecting factories.

But businesses have been considering increasing wages to meet their hiring needs and that’s adding to the inflation risk.

Then there is that matter of runaway commodity prices that we have written about earlier. It’s a topic that’s not getting old simply because the price trend seems stuck in up mode. Markets weigh prospect of new commodities supercycle, from the Financial Times and free to read for Moneycontrol Pro subscribers, sketches out the scenario for a supercycle to emerge, how many we have had so far (four), with the most recent one being the rise and rise of China as an industrial superpower.

The main question is of course, if a supercycle is here. While the bull case has got enough publicity, the article also gives reasons why the sceptics could be right, mainly centred on the hot air that is blowing into this balloon from the world’s central banks that are doing whatever it takes to support the world economy during a pandemic.

Consider this. The central banks’ easy money policy is sending commodity prices higher. Higher commodity prices are partly responsible for rising inflation. Higher inflation is a risk for the central banks’ easy money policy. That in turn is a risk for all asset classes. All roads appear to lead to the central banks’ door, especially the US Federal Reserve. If raising interest rates is the only option to puncture the inflation balloon, then has the climax to this movie already been written?

From the Opinion desk:

Soaring drug sales may have a cautionary message for investors

What lies beneath Moody’s update on India’s credit rating

Chart of the Day | The aggregate effect of state lockdowns on India’s GDP

The curious government affidavit on COVID-19: More questions than answers

Investing insights from our research team:

Gillette India: Defensive bet growing at double digits

CSB posts stellar earnings; will the stock get rerated further?

Technical picks: Voltas, Cipla, IRCTC and SBI (published every trading day before the markets open and can be read on the app)

Ravi Ananthanarayanan
Moneycontrol Pro​