Global Inflation
Principles of the Stock Market

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Have You Seen This?

Have You Seen This?

Global Inflation a Problem.  We’ve got a growing problem with US and global inflation, no matter what our Federal Reserve Bank says.  Although our Fed ignores them, or says they will go down soon, food and energy costs are rising and global, right?  Thus higher inflation is a global issue.


ASIA.  Many Asian countries are fighting today’s rising inflation with higher interest rates, countries like China and Australia.  Others are capping prices.  China’s overall inflation rate just soared 7.1% in January after jumping 6.5% in December while producer prices (their PPI) jumped 6.1% in January on higher oil and raw materials prices.  These higher producer costs translates into higher prices on China’s exports which hits US, European and other buyers.  China’s export prices just rose for the 8th straight month.  And the current US Federal Reserve rate cuts are giving Asia fits as well.  We live in a global economy now.  You see, when we lower rates it widens the spread between US interest rates and Asian interest rates and thus more foreign money flows over to Asia which just increases their money supply which in turn boosts inflation.  Anyway, Asian countries are trying a variety of measures to control rising prices.  Below are some problems and attempted solutions, few of which have proven successful in the past. 

 Sri Lanka                Inflation jumps +20% in JanuarySingapore              Inflation at highs not seen in 25 yearsIndia                       Now says they will take into account America’s interest rates when setting theirsPhilippines            Proposing subsidies to help cap electric pricesMyanmar               Suffered biggest riots in 20 years when threatening to reduce subsidies in placeViet Nam                Just raised interest ratesAustralia                Raised interest rates to an 11-year high because of the fastest inflation in 16 yearsThailand                                Letting their currency rise now to attempt to contain inflationMalaysia                Letting its currency rise to contain inflationJapan                      Consumer prices rose the most in more than nine years in December. 

EUROPE.  Over in Europe it’s even harder to battle inflation with higher interest rates because of the weakened financial system from the global credit crunch and because of concurrent slowing economic growth.  But with a well known history of runaway inflation ruining European economies and currencies, the European Central Bank has resisted lowering interest rates.  Keeping rates high as long as possible it today’s approach but many feel Europe will have to capitulate and fight an oncoming recession.

 SCHWARTZ SUMMING UP.  Here at home we’re taking the opposite approach to problematic inflation.  We’re just saying it’s no problem and lowering rates as fast as we can.  But come on, let’s get real!  The just released January month over month increase in import prices jumped triple expectations or up 1.7%.  That’s the fastest yearly rate, up 13.7%, since tracking began in 1982 or 25 years ago.  Yet the Fed continues to say inflation is going to drop any time now, say with the economic slowdown.  The Fed has been almost dead wrong in all of their forecasts over the last year so why should we believe this one about inflation declining?  Especially as we see oil move above $100 a barrel, food prices keep rising, Chinese exports soaring and businesses now passing along raw material increases almost daily..  My view is we shouldn’t believe the Fed.  And that’s a big problem which we shouldn’t have to face right now!

Posted 02-21-2008 9:09 AM by Richard Schwartz