The global stock and bond second market fluctuations in March, the rebound in U.S. debt rates triggered stock market shocks, the market is digesting the global launch of the new crown vaccination after the economy will gradually restart, the reversal of fiscal and monetary policy, will burst the current asset bubble? How big will be the impact of Inflation reheating?
In fact, since the end of last year quarter, the first signs of global inflation have emerged, global commodities such as soybeans or copper, the shipping industry and countries such as Brazil, are facing the pressure of rising prices, how should investors respond?
● Metal products
Government efforts to lift the economy out of the Epidemic slump have involved spending on infrastructure projects and financial support for households that spend some of their cash on electronic devices. Both have led to a surge in demand for metals, which has pushed up prices.
Copper prices have been rising for almost a year, picking up in February before falling back this month. Iron ore and nickel have also hit multi-year highs, and steel prices have more than doubled in the past six months, which will increase costs for manufacturers and is one of the reasons why China recently released higher-than-expected producer price data.
The rise in metals is a sign of the “recovery of the old economy”, which is stimulating demand for consumer durables, as well as new demand from the new economy and the construction of green economy programs.
From laptops and TVs to webcams, semiconductors were a key component of many demand items during the lockout and work-at-Home year. Prices for some varieties, such as memory chips, have risen this year.
Surging demand has led to a supply crunch, exacerbated by geopolitics. In this $400 billion industry, the major players are Taiwan and South Korea, whose exports are increasingly caught in the U.S.-China dispute, and sanctions against Chinese producers have further raised global prices, resulting in frustration and higher costs for buyers. Car companies have had to slow down their production lines.
● Food industry
The post-epidemic rebound has been a driver of higher global food prices. In the U.S., chicken leg prices are rising as large restaurants come back online. China’s domestic recovery is fueling demand for soybeans, the price of which has risen more than 60 percent in the past year.
There are many other reasons, including the common causes of drought and disease. In China, an outbreak of African swine fever threatened to repeat itself last year, when the virus killed tens of millions of pigs in Asia.
The cost of food is particularly important to policymakers in emerging markets, which spend a disproportionate share of their expenditures and have more households at risk of hunger. In the Philippines, where food costs are driving inflation close to 5%, the government has imposed price caps.
● Oil industry
In addition to a strong recovery in demand (with more travel likely), oil supplies have been hit by a supply crunch after producers decided to limit production. This has pushed Crude Oil prices close to $70 per barrel, a level not reached in almost two years.
This is particularly threatening for emerging countries like Turkey and India, which rely on imported energy. They risk falling into larger trade and budget deficits, which could scare away investors and weaken currencies.
Higher fuel costs are hurting drivers around the world and affecting almost every corner of the economy. For example, in Brazil and Mexico, the price of LPG tanks used for cooking in poorer households (wealthier households are more likely to be connected to the natural gas grid) has gone up this year.
Low interest rates and the spread of work-at-home jobs are driving a boom in the real estate market in many countries (especially the United States and the United Kingdom). So far, there has typically been no comparable increase in rental costs. In the latest New York Fed consumer survey, rents are expected to soar 9 percent by next February. In China, the top banking regulator has raised concerns about the risk of a property market bubble, pointing to a “very dangerous” trend of speculative buying and warning that stricter policies may be needed to limit lending.
A shortage of containers has been the cause of rising transport prices in recent months, potentially adding new costs to imported goods. The government and companies have been trying to find a solution. State-owned Indian Railways moves empty boxes from seaports to inland warehouses free of charge, while a German supermarket chain briefly looked at shipping options for imports from China.
German chemical maker BASF, which raised customer prices by 7 percent last quarter, has been grappling with a crate crunch and rising prices for precious metals. A wide variety of U.S. retailers are reporting logistical troubles that threaten to push up prices at their stores. Transportation costs are not included in U.S. import prices, so it’s hard to figure out how to pass them on to consumers.
● Emerging Market Inflation Risks Highlighted
Inflation in Brazil jumped to 5.2 percent in February, about twice as high as six months ago, and is already forcing policymakers to change course. The country is spending more under the epidemic than almost any other emerging economy, with a budget deficit of almost 14% of gross domestic product (GDP) last year compared with the United States.
Brazil also has one of the world’s worst outbreaks of Covidien and is a laggard in vaccination, so measures may have to be extended into this year. All of this spending has weakened the currency and fueled inflationary fears. Just a few weeks ago, central banks were talking about keeping interest rates at record lows of 2% for longer, and the Time for central banks to raise rates or get closer is bound to have some psychological impact on policymakers and investors in emerging economies.