The current inflation push began with a pandemic when western Society had to adjust its production rate and consumption systems to take consideration the economic shutdown that occurred. What that means is that when people stop going to the office or going to the restaurant or going out they change your consumption patternsin the same way as demand for high dropped the demand for two by fours for constructions explodes because people have nothing better to do.
in the same way as demand for high dropped the demand for two by fours for constructions explodes because people have nothing better to do.
That was the first wave The second wave was when the world returned to normal, and this process is near completion now too as demand for vehicle increases as return to the office has occurred then consumption pattern return to their old standards. These two changes. These two variances have led to inflation pressures because there are natural shortages that occur in these quick changing scenarios, however once these changes occurred, then reality establish itself.
, however, once these changes occurred, then reality establish itself.
The dilemma for policy makers is the standard nature of the inflation pressure they have been seen, and the reason that policy makers have not adapted or changed their policy very much is they realize that this was a transitory change and not a fundamental cost base push . Now certain things are out of bound in terms of price increases, and these will readjust themselves one way or the other the most obvious is food cost, which has exploded, which is a fallout from the change in labour usage on farmland, but also cost of certain input that I have risen dramatically some for , pandemic reason for War reasons.
War reasons. The truth is that the war in Ukraine and the war that is emerging in Gaza are impacting both the supply of certain fertilizer and transport of finish good through the Suez Canal.
what will in addition, slow down inflation pressure will be the change demographics that is starting to really rear its head across Europe and Asia in a way that is fundamentally changing the nature of economic activities. There is no doubt that the absence of youth that take over will have a detrimental impact on consumption, this has been mostly in Europe because of the very high impact of its delayed answers to the massive push by China to extricate itself from its own economic woes by exporting its way out of its trouble.
, this has been mostly in Europe because of the very high impact of its delayed answers to the massive push by China to extricate itself from its own economic woes by exporting its way out of its trouble.
The reality of China is that it faces existential crisis because of its lack of birth for the past 40 years it may sound ridiculous at value but the truth is that labour cost in China have risen 15 fold in the past 15 years, this is good for the workers obviously but it makes China labour uncompetitive when compared to other location .
.
This brings to the front to opposing forces in inflation first there is inflation caused by the nonavailability of certain inputs or increase cost grain as an example and fertilizer as another example. A lot of fertilizer is created out of the transformation from natural gas into fertilizing products, the fact that urban fertilizer plants no longer have access to feed stock or that Russia is no longer allowed to export, and Ukraine is no longer able to export has huge implication for many parts of the world , and informals Africa for the grain and Brazil for the fertilizers.
, and informals Africa for the grain and Brazil for the fertilizers.
So they response from the financial authority to inflation has been muted, because of all these external forces that had nothing to do with permanent changes in the price structure of our economy, you cannot raise interest rate to have a reduction effect when the cost of fertilizer are driven by feed stock that is no longer available these are fundamental changes to the economic structure and non-driven by excessive demand. It’s just a shortage in the supply side and monetary intervention not able to respond to these pressure the opposite increasing interest rate in an environment where you need more production capacity will lead to more inflation and not to a reduction and cost the exact opposite of what you’re trying to achieve
Comments