In 2021 the official annualised inflation rate across the whole of the European Community was 2.9 percent having reacted sharply higher as the world came out of its lockdown slumber. A forgivable reaction with supply lines readjusting to global demand surging in just about everything.
Financial and commodity markets are currently all about oil. In peacetime, oil investors tend to follow the sentiment of the wider investment world; during wars, they shape it. Energy-induced inflation, coupled with political turmoil in France, is putting enormous pressure on bond yields, making public debt increasingly difficult to service and heralding tax increases and spending cuts further down the line.
Given the newly found love affair between oil prices and bond yields, it is self-evident, almost axiomatic, that borrowing is becoming ever more expensive. Although US Treasury yields pulled back from recent highs after decent demand at the latest 30-year bond auction, fears of inflationary pressure and competition between sovereign and corporate debt will likely keep borrowing costs elevated.
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