Early 2024 Global Factors No Longer Disinflationary For Goods, Now Neutral

Global developments so far this year are unlikely to add upward pressure on goods inflation as a whole but they are also unlikely to continue driving inflation lower as they have done. At best they are neutral in aggregate. RBA February meeting minutes noted that “any further slowing in this component was likely to be modest”. Sticky services inflation remains a problem for a number of central banks.

• Oil prices and shipping costs are likely to add to price pressures but non-oil commodity prices, including metals and gas, and food should continue to be disinflationary, while supply-chain pressures are probably neutral. G20 disinflation stalled when the supply chain index and oil prices troughed.
• Container rates began trending higher in Q4 last year but have risen sharply this year driven by attacks in the Red Sea but they have eased in recent weeks. The global FBX rate is up around 15% m/m in February following a 124% m/m jump but the Baltic Dry Index is down 4.5% m/m after -32.6%.

• Geopolitical developments especially in the Middle East have driven oil prices higher with Brent rising 2% m/m in January and another 3% so far this month. This is being seen in higher fuel prices. An expected market surplus in 2024 should put downward pressure on prices eventually.
• Supply chain pressures remain subdued with the NY Fed index remaining slightly negative in January.

• Food prices are subdued falling 1% m/m to be down 10.4% y/y in January driven by cereals and meat. Processed rice prices are down this year but rough rice is higher, while wheat is around 10% lower.
• Other commodities have been weak at the start of 2024 with LME metal prices down moderately, iron ore 8% lower and wool -3.1%.