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China economy
OpinionComment
David Chao
David Chao

Macroscope | What do rising energy prices mean for inflation in China and the US?

  • While energy and commodity investments are a good hedge against inflation, recent prices have been very high
  • It’s likely that the worst of the energy crisis is behind us in China, though the near-term outlook is less certain in the US and Europe

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A parking attendant gestures as he stands below power lines in Beijing on October 13. China’s post-pandemic economic rebound has relied heavily on energy-intensive industrial production and property construction, creating sizeable demand for electricity over the past year. Photo: AFP
David Chao
Energy and commodity prices have soared since the pandemic began and are fuelling concerns that elevated inflation levels are here to stay. Higher energy prices have already translated into higher input costs, especially for energy-intensive manufacturers in places like China.
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As debate continues on whether the global economy is heading for stagflation over the next few months, energy prices continue to move higher due to supply shortages and robust demand following economic reopening.

While energy and commodity investments are a good hedge against inflation, recent prices are very high, especially when compared to historically adjusted levels.

It’s likely that the worst of the energy crisis is behind us in China, though the near-term outlook is less certain in the US and Europe – much depends on whether these regions experience a typical winter season. It’s difficult to see energy prices being much higher in six months time.

If they remain elevated, which is foremost in the minds of investors, a positive side-effect could be more capital expenditure by businesses on energy-efficient equipment. This could be the start of a mini capex cycle since many large companies are flush with cash and funding costs remain ultra-low.

04:01

Chinese manufacturing thrown into disarray as country's electricity crisis rolls on

Chinese manufacturing thrown into disarray as country's electricity crisis rolls on
In the US, high energy prices haven’t had a significant impact on production and core inflation mostly because energy costs are far less important than labour costs in a predominantly service-oriented economy and the US is a net energy exporter.
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