Nothing seems to be able to stop the price increase. In a study published last month, INSEE warns: “Energy prices accelerate in June.” Within a year, the cost of gasoline increased by 35.9%, diesel by 45.9% and gas by 49.3%. Food prices are also increasing: +6.6% for bread and cereals, +17.7% for oil.
In the midst of an assembly debate on the review of the Purchasing Power Act, Adrien Quatennen’s inflation issue provoked strong reactions. Invited on BFMTV, on July 18, the MP from La France insoumise named those responsible for this increase: the “Price increase (…) is largely due to speculation (…) large groups“.
It’s not fair that the French are paying for a price increase that’s largely due to speculation and the super-profits of big corporations. The price freeze we’re proposing is designed to curb speculation and make those who profited from the crisis pay Share. pic.twitter.com/U9lBvGggcm
— Adrien Quatennens (@AQuatennens) July 18, 2022
Adrien Quatennen did not provide any information on the affected industry groups. Not even given the source of his analysis. So, is the proxy saying true or “false”? Franceinfo interviewed several economists to verify this.
In economic matters, the first thing to note is that speculation is common behavior on the markets. If a petrochemical fertilizer plant needs oil to make its fertilizer, it may want to hedge its upside with a futures contract, the right to buy a barrel at a fixed price several months from now. In this case, the factory speculates: it buys oil at a different price than the current market price, to be sure what price it will pay for its raw material.
“This is called hedging, which has an industrial logic‘ explains Jacques Percebois, Professor at the University of Montpellier and Director of the Center for Research in Economics and Energy Law (Creden).If I think the price of oil will go to $130 in the future, I will get more oil“, for example, with a futures contract giving the right to buy a barrel at $110 with delivery in three months. “CThis operation will increase prices but allow me to hedge against a higher future price, like insurance‘ the economist explains.
But manufacturers aren’t the only speculators in commodity markets. Investors such as banks or funds only buy oil or food with the aim of making a profit on resale. An essentially financial speculation. If the actions of investors can ensure the liquidity of the markets, i.e. the possibility of easily finding a buyer or seller, they arouse the suspicion of speculation alienated from real economic life.
Under these conditions, is it relevant to weigh in on the speculation of large groups in order to explain the current inflation? In other words, are manufacturers organizing a shortage to artificially raise selling prices? The question divides economists because the speculative behavior is not exactly the same depending on the industry, be it the market for food or mineral oil products, for example.
The oil market doesn’t indulge in pure financial speculation, writes Jacques Percebois: “Refiners and oil companies are just protecting themselves.” For the specialist Above all, oil companies want to protect themselves against price fluctuations. Unlike Adrien Quatennen, however, the economist wants to be careful: “We can only measure the level of speculation and its impact on rising prices with hindsight, and we need to conduct studies to analyze this.”
An influence of speculation on the volatility of the oil price cannot be completely ruled out. “It could amplify both ups and downs“Prices,” assures Carine Sebi, energy specialist and professor at the Grenoble Ecole de Management (GEM). “According to a Senate report [de 2005]speculation accounts for 10 to 20% of the price of oil, which is not negligible.”
For its part, the grain market, by its organization, appears to be even more susceptible to price manipulation than the oil market. According to Olivier De Schutter, author of a report on the right to food at the UN and member of Ipes-Food, an expert body on food issues, there is indeed speculation in the market for this type. “It hasn’t caused inflation, but it can make it worse“, he explains. Olivier De Schutter denounces the responsibility of trading companies that act as intermediaries between grain producers and buyers. “Grain traders are a small number of highly concentrated firms that control 75-80% of trade“, he says. These companies “Can delay sales, accumulate inventory, and speculate on rising food prices through their buying and selling actions to create a kind of shortage.“
An analysis rejected by Philippe Chalmin, liberal economist and President of the Observatory on the Formation of Food Prices and Margins. The link between speculation and inflation is a stupid stuffhe claims. There are many studies to assess the impact of speculation on the markets. They showed that in the medium term there was no impact on prices or, on the contrary, even impact patch.“ A report released in 2011 by the Economic Committee of the National Assembly confirms this “that no systematic connection between speculation and long-term pricing could be established”.
Despite the lack of studies showing price manipulation by speculators, NGOs remain concerned and are calling for more regulation of food markets. “The lack of recent scientific evidence on the impact of excessive speculation on food prices does not justify a lack of policy intervention.”emphasizes Thomas Braunschweig, an expert on trade policy at the NGO Public Eye, to the Swiss magazine economic life.
In summary, it’s difficult to be as positive as Adrien Quatennens. To date, no study has established an undeniable link between rising commodity prices and corporate speculation. But some markets, such as grains, have real vulnerabilities to price manipulation.