Shoppers' complaints about food prices could soon grow louder, as surging energy costs and supply-chain delays are elevating costs for producers: “The worst is yet to come”
The surge in energy costs coupled with ongoing supply-chain challenges is poised to exacerbate inflationary pressures, particularly in the grocery sector. As producers face higher operational costs, consumers may soon voice increased complaints regarding rising food prices. This scenario is critical as it reinforces the notion that inflation in developed economies will remain persistently elevated, supporting further monetary tightening and subsequently bolstering the USD against commodity-linked currencies. As labor costs also contribute to this inflationary backdrop, market participants should closely monitor these emerging trends.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The current market sentiment aligns with the potential for USD strength based on persistently rising inflation forecasts.
How firms align
JPMorgan and other aligned firms express a constructive outlook on the USD amid concerns over rising input costs and inflation. According to our reports, JPMorgan projects a target of 1.10, forecasting that these inflationary pressures could continue to drive USD appreciation in the coming months.
What the data shows
Recent research indicates that escalating food and energy prices may compel central banks to adopt more aggressive rate hikes to curb inflation. Notably, revised forecasts highlight a potential increase in consumer price indices, consistent with our internal projections on inflation dynamics.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01High energy costs are fueling inflation, pressuring USD upward.
- 02Expect further rate hikes as inflation remains a persistent issue.
- 03USD poised to strengthen as input costs rise; watch for consumer price index data.
Market implications
Market participants should closely watch the upcoming consumer price index data release. A strong reading may reinforce the case for further USD strengthening, aligning with our consensus target at 1.075.
Risks to this view
A reversal in this view could occur if supply-chain issues are resolved more quickly than anticipated, or if energy costs stabilize, alleviating inflationary pressures.
Sentiment by currency
USD+EUR JPY~GBPComposite USD score: +0.65
Sources & References
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