Challenge in recovery...

One of the hot topics currently is the increasing inflation rate that led to increase in cost of living. 

We can see from figure 1 & 2 that since the outbreak of the pandemic,  Producer Price & sea freight rate has been increasing... There are signs actually before the actual hike in recent goods price. Producer Price Index (PPI) is a measure of inflation at the wholesale level of the economy measuring producer prices by industry & product category.

One of the challenges that faced by many developed western countries during the recovery from the pandemic is how to control/balance the inflation when economy re-open under the situation of the global supply chain disruption. 

So far, there is not yet a complete vaccine. The West chose to open up all the economy sectors when booster shot proven to be able to reduce severe symptoms.  Imagine the intermittent breakdown in between the supply chain... For Import/Export, whether finished goods / semi-finished goods / raw materials , from manufacturer -> forwarder warehouse -> port -> cargo ship -> destination port -> buyer's forwarder warehouse -> buyer. Any disruption/shortage of workers in between will cause the delay in goods supply then the price hike when the demand exceeds supply especially when the country economy re-open.

 

Figure 3 showed the latest inflation rate of different countries. During the recovery from the pandemic, FED hopes to achieve soft landing... For current situation, it is a hard decision for FED on the interest rate policy. The inflation is very high, if rate hike is implemented high/too fast, it will dampen global economy recovery. While the possible slow pace of rate hike do not help much either because of the gap in between the interest rate and actual inflation rate.

Russia knows the challenge faced by the west. Russia is the world's third largest oil producer behind the United States and Saudi Arabia. While, Ukraine and Russia both play a major role in global food markets. The decrease in food & fuel supply in the global market will definitely push inflation up further... The question is how long will it continue? 

Figure 4 shows the current trend in 10 year government bond yield. Rising yield indicates falling demand from investors... We can see that Russia's ruble go in reverse direction few months ago, from increasing yield to back to normal. What happened to the EU sanction? Is it have "No Effect" ?  It is because of the capital control from Russia's Central bank preventing its currency from flowing out of the country.

Russia is not in a low position. On the other hand, what are the strategies behind China's zero-covid policy? We can see that China controls well its inflation rate & bond yield during the recovery..... TO BE CONTINUED

Reference:

https://tradingeconomics.com/

https://www.worldometers.info/

My Previous Article:

https://ce-lifediary.blogspot.com/2021/11/global-market-recovery.html

https://ce-lifediary.blogspot.com/2021/09/outlook-of-domestic-market.html

Chan Hang

June 2022