Energy costs hike ahead of rates, Technical Outlook, Edition #192 (08/03/2022)
War on the rocks, Cost of living rising, Wage growth left wanting - it's a fun time to be a Market Sapien! Read on tonight's technical deep dive now 👇
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Soaring costs in energies ignite worries of inflation... and recession?
Consumers feel pain at the pump, with rampant rises in oil and energy prices.
Aside from hurting the back pocket, there is a view that acute inflation in energy prices may end up causing a recession.
The historical view shows an apparent trend. For example, the three most recent US economic recessions were preceded by a sharp spike in oil prices.
Crude oil prices peaked from their low in 2007 to over 96% higher in 2008 in the lead up to the Global Financial Crisis (GFC). Before the 2001 recession, crude prices more than doubled in the subsequent two years. Even earlier, crude oil ran up almost 135% higher in just over one fiscal quarter in 1990.
While the past does not necessarily indicate the future, a perceivable pattern suggests further inquiry from practitioners.
There is technical reasoning behind this link between sudden and sharp increases in crude oil prices and economic recession.
Sharp increases in the cost of crude oil—a happy coincidence or harbinger of economic recession?