Long live inflation – Newspaper Kommersant No. 42 (7487) of 03/14/2023

All last year, most leading economists were confident that in 2023 the US economy, and even more so the EU, would enter a recession, which would blow away the “bubbles” created by the super-soft monetary policy of the financial authorities during the pandemic. The US Federal Reserve stubbornly raised the base rate, which, according to generally accepted views, should have reduced consumption, slowed economic growth and thereby reduced inflation. For the Russian economy, this did not mean anything good, since it should have led to lower commodity prices.

However, months passed, and the expected recession, signs of which analysts diligently looked for in the statistics of new jobless claims in the US, the dynamics of the PMI index and new home sales, still did not come. Even the European economy, as it seemed in February, may well avoid a technical recession thanks to lower energy prices and signs of recovery in industry. And the opening of China after the lockdowns created an idea among investors that, in general, there is no need to worry about demand, and Western central banks have the opportunity to continue their uncompromising fight against inflation without bringing down their own economy.

Now this rosy picture clearly needs to be corrected: the sudden collapse of the 16th largest US bank, Silicon Valley Bank, brought back vivid memories of the 2008 financial crisis and the unexpected bankruptcy of Lehman Brothers. While there is no clear reason yet to believe that the US banking crisis will widen, two things are already clear. Firstly, the increase in base rates really created problems, just so far in the financial, and not the real sector of the economy. And secondly, US financial regulators did not expect such a scenario and, it seems, were not ready for it.

Paradoxically, for Russia, the problems of the American banking system can turn into a boon. Now the market is waiting for the Fed to “give up” and give the banking sector additional liquidity, and also refuse such a rapid increase in the base rate. All this can lead to an increase in prices for raw materials, including oil – it is precisely such expectations that explain the dynamics of Brent quotes on March 13, which first collapsed by 5%, and then the fall was almost completely bought out.

Even with the tight monetary policy of the Fed, many analysts expected oil prices to rise above $100 per barrel in the second half of the year, and now, if the regulator is forced to slow down the rate increase, these targets may be exceeded. Of course, this will mean that the Fed’s goal of curbing inflation by 2024 will not be met, but it is probably still better than a full-fledged financial crisis.