As the Epidemic eases and the global economy gradually shows signs of recovery, financial markets are facing serious questions about whether the recovery will bring an inflationary explosion! In fact, in some of the world’s economies, Inflation has quietly appeared.
The “bear school” analysis believes that today’s inflationary space will be transformed into a comprehensive price increase tomorrow, with economic revitalization plans adding fuel to the fire. The “bulls” believe that price increases are mainly caused by short-lived spikes or economic bottlenecks, and that although similar situations have occurred in the past, they have not culminated in terrible inflation.
In any case, since the end of last year, the first signs of global inflation have emerged, as evidenced by the following seven signs.
[1. Increased demand for metals Steel prices rose more than twice]
The government has put a lot of money into infrastructure projects to get out of the economic downturn brought on by the epidemic, as well as providing financial support for some households that spend their cash on buying electronic devices, both of which have led to a surge in market demand for metals, thus pushing up prices.
Copper prices had been rising for almost a year until they fell 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 China recently released a higher-than-expected industrial producer price index (PPI).
The rise in metal prices is a sign of the “old economic recovery”, as the economic recovery stimulates demand for consumer durables, and the construction of new economic and green economy plans also brings new demand.
- China and the United States to compete for supremacy semiconductor supply tightening]
From laptops and TVs to webcams, semiconductors are a key component of many demand items in a year of embargo measures and work-at-Home jobs. Some varieties, such as memory chips, have increased in price this year.
The surge in demand has led to a supply crunch, which has been exacerbated by geopolitics. In this $400 billion industry, the main players are Taiwan and South Korea, their exports are increasingly affected by the U.S.-China dispute, sanctions against mainland producers further raised global prices, resulting in higher costs and frustration for buyers, car companies have to slow production.
[3. Recovery disasters push up Food prices].
The rebound in demand after the epidemic was a driving factor in the rise in global food prices. In the U.S., chicken leg prices are rising as large restaurants come back online. The recovery in China is spurring demand for soybeans, whose prices have risen more than 60% in the past year.
In addition, food prices are rising for many other reasons, including common causes such as drought and disease. China, for example, is again threatened by an outbreak of African swine fever, a virus that killed tens of millions of pigs in Asia last year.
Food costs are particularly important to policymakers in emerging markets, which spend a disproportionate amount on food and have more households at risk of hunger. In the Philippines, food costs have caused inflation to rise to nearly 5%, and the government has imposed price caps.
[4. Oil prices rose to nearly 70 mark for the first Time in two years]
In addition to a strong recovery that could drive more travel, oil supplies have been hit by a supply crunch after producers decided to limit production. This had pushed Crude Oil prices close to $70 a barrel, a high in nearly two years.
This is particularly threatening for emerging countries like Turkey and India that rely on imported energy, not only putting them at risk of falling into larger trade and budget deficits, but also potentially scaring away investors and weakening currency Exchange Rates.
The high cost of fuel affects motorists around the world and has impacted every part of the economy. In Brazil and Mexico, for example, the price of liquefied petroleum gas (LPG) in tanks for cooking in poorer households has risen this year.
[5. rent potential soaring property bubble fear burst]
Low interest rates and the prevalence of work-at-home jobs have led to a boom in the real estate market in many countries (especially the United States and the United Kingdom). So far, the cost of rent is usually not comparable growth. In the latest consumer survey by the Federal Reserve Bank of New York, rents are expected to soar by 9% by next February. In China, the top banking regulator is concerned about the risk of a real estate bubble, noting that speculation is “very dangerous” and warning that stricter policies may be needed to limit lending.
- Container shortage, cost shifting to consumers
The shortage of containers is the reason for the increase in transport prices in recent months, which may lead to new costs for imported goods. The government and businesses have been trying to find a solution. State-owned Indian Railways moves empty boxes from seaports to inland warehouses for free, while a German supermarket chain has looked at shipping options for goods imported 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.
Brazil continues to pump water to fight the epidemic, weakening the value of the currency
Inflation in Brazil jumped to 5.2% last month, about twice as high as it was six months ago, and is already forcing policymakers to change course. The country is spending more than almost any other emerging economy under the epidemic, with a budget deficit of almost 14% of gross domestic product (GDP) last year compared to the U.S.
Brazil is also home to one of the world’s worst outbreaks of Wuhan pneumonia and is behind on vaccinations, so preventive measures are likely to continue into this year. All of this spending has weakened the value of the currency, thus adding to inflationary concerns. Just a few weeks ago, the central bank is talking about keeping interest rates at a record low of 2% for a longer period of time, and the time for the central bank to raise interest rates or get closer is bound to cause some psychological impact on policymakers and investors in emerging economies.
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