Bloomberg
Inflation is already creeping into some corners of the world
(Bloomberg) – The big question on financial markets is whether the recovery from the pandemic will lead to an outbreak of inflation. In some corners of the world economy it has already come. In commodities such as soybeans or copper, industries such as shipping and countries such as Brazil, prices have risen rapidly – for reasons directly linked to the disruptions of Covid-19, the policy response, or the increase in demand that offers hope for recovery . This is not enough to settle the big inflation debate in any way. Hawks says that inflation bags today in general will turn into price increases tomorrow, with stimulus supplying the fuel. Skeptics see price increases driven primarily by temporary setbacks or bottlenecks – pointing out that similar alarm bells rang after the 2008 crash, when inflation never showed up. Following are some of the areas that have already seen an increase in prices – and how this fits in with the broader inflation picture. Metals Government efforts to pull economies out of the pandemic have involved spending on infrastructure projects and financial support to households that have spent part of the cash on electronic equipment. Both contribute to the roaring demand for metals which continues to drive up prices. Copper has been rising for almost a year, accelerating in February before falling back this month. Iron ore and nickel have also reached multi-year highs, and steel prices have more than doubled in the past six months. All of these increases add to the cost to manufacturers. This is one of the reasons why China posted higher than expected producer price figures this week. The run-up to metals is the “revenge on the old economy” – with pandemic stimulus affecting the purchases of sustainable consumers – and also shows the demand for new -Economy-green initiatives, with about $ 16 billion in capital expenditure spent over the next decade, Jeff Currie, global head of commodity research at Goldman Sachs, told Bloomberg Television. and work from home, from laptops and televisions to webcams. The prices of some varieties, such as memory chips, have risen this year. The increase in demand has led to a supply crisis exacerbated by geopolitics. The major players in the $ 400 billion industry are Taiwan and South Korea, and their exports are increasingly caught in crossfire between the US and China, with sanctions against Chinese producers boosting global prices. The result was frustration and higher costs for buyers. Tesla Inc. had to slow down production lines. The German car parts manufacturer, Continental AG, said the shortfall is likely to cost the company around 200 million euros. Food The recovery from the pandemic is a cause of higher food prices around the world. In the US, chicken legs are rising as big-order restaurants come online again. The local recovery in China is leading to a greater demand for soybeans, whose prices have risen by more than 60% in the past year. There are also many other causes, including the most common of droughts and diseases. In China, an outbreak of African swine fever threatens a repeat of last year when the virus killed tens of millions of pigs in Asia. Food costs are especially important for policymakers in emerging markets, where they spend an excessively larger share of spending and more households are at risk of starvation. In the Philippines, where food costs have pushed inflation to almost 5%, the government has introduced price restrictions. Energy In addition to stronger demand in a recovery that is likely to bring more travel, oil was also hit by a supply crunch after producers decided to limit production. This helped drive crude oil towards $ 70 a barrel, a level it had not reached in almost two years. This is especially threatening for emerging countries that rely on imported energy, such as Turkey and India. They run the risk of driving larger trade and budget deficits that could deter investors and weaken currencies. Higher fuel costs are hurting drivers everywhere and reaching almost every corner of the economy. In Brazil and Mexico, the cost of LPG containers cooked in poorer households – more affluent countries are probably more connected to the natural gas network – has risen this year. from home is the boom in the real estate market in many countries, especially the US and the UK, so far there have usually not been comparable increases in rental costs – but this may follow. In the latest consumer survey of the New York Fed, rents are expected to rise by 9% by February next year. Windfall increases for homeowners and rising prices for tenants are a recipe for increasing inequality. In China, the largest banking regulator is loudly concerned about the risk of a bubble in real estate markets, indicating a ‘very dangerous’ trend towards speculative purchases and warning that stricter policies may be needed to curb lending. Shipping A shortage of containers is behind the rise in delivery prices over the past few months, which threatens to add a new layer of cost to imported goods. Governments and businesses scramble to find corrections. State-owned Indian railways transferred empty cabinets free of charge to domestic depots from seaport, while a German supermarket chain briefly explored the option of importing trucks from China. The German chemical manufacturer BASF SE, which increased prices for customers by 7% in the fourth quarter. , says he is struggling with the container problem as well as higher prices for precious metals. All sorts of American retailers have already reported logistical problems that threaten to push up prices in their stores. Shipping costs are not captured in U.S. import prices, making it harder to figure out how they are passed on to consumers. Brazil Brazil’s inflation rate rose to 5.2% in February, about twice as much as it had been six months earlier, forcing policymakers to change course. The country has spent more on pandemic relief than almost all other emerging economies – competing against the US with a budget deficit of almost 14% of GDP last year. It also has one of the worst outbreaks of Covid in the world and is lagging behind in vaccination – so the measures are likely to last until 2021. All these expenditures weakened the currency and fueled inflation fears. Just a few weeks ago, the central bank talked about keeping interest rates longer at a record-low 2%. Now it is expected to rise next week. While Brazil is an outlier in key matters, it is essentially the chain of events that policymakers and investors worry about in other emerging economies as well – and perhaps even in some developed countries. Feel free to visit us at bloomberg.com. Sign up now to stay ahead of the most trusted business news source. © 2021 Bloomberg LP