The Fourth Horseman - Inflation?

[mongers]

Yeah, as I mentioned in the China thread - the worst crop in a century is combined with skyrocketing prices for imported food (and energy) as well. Hardly ideal for China.

This on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.

[Jacob]

This on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.

Which will potentially lead to instability and possibly war.

[mongers]

This on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.

Which will potentially lead to instability and possibly war.

Sssh, don't tell Berkut.

[mongers]

My electricity kWh cost went up 71% on the 1st of April; Is this a return to the 1970s?

[Crazy_Ivan80]

This on top of the grains not getting out of the Ukraine or even beting planted in the first place, means millions of the worlds poorest will starve this year.

Which will potentially lead to instability and possibly war.

Saw news that there were foodriots in Sri Lanka. The rest won't be far behind

[Sheilbh]

Report on how Germany's transitioning to become a major LNG importer which is very good news, but interesting comment from Helen Thompson:

Helen Thompson POLIS
@HelenHet20
Or having absorbed the shock of a 19% increase in China's demand for LNG imports in 2021 sending European and Asian LNG prices soaring, the LNG market will now be hit by a second shock, which will force European countries to decide whether gas is to be a transition bridge or not.

This is why I think the forces from the war will drive Europe and East and South Asia into moving faster on energy transition and renewables. I don't see any reason to think the gas shocks will stop, the big consumers in Europe and Asia don't have domestic support (or much domestic supply of alternatives) - so I think all of the forces will push those countries to transition away from fossil fuels quicker, in a way that I don't think is true for the US or other energy producing countries

[Tamas]

What it's likely going to move them toward is coal, if Germany's recent history is any indication.

[Crazy_Ivan80]

Renewables Will only result in dependency on rare earths and specific minerals. Something that is continuously ignored by many.

Coupled with a big drive towards further electrification I'm not convinced we're not walking into just another disaster with self-created shortages... Like in some 3rd world shithole.

[The Minsky Moment]

Inflation is a phenomenon the relates to the general price level and not to relative prices of specific commodities, even really important ones like energy.  Energy prices fluctuated quite a bit during the long deflation (mid 90s-2020) and got quite high at various points; on the other hand, energy prices were pretty low during much of the more inflationary postwar period.  It's a common mistake to make since inflation is an abstract concept and it is tempting to identify simple causal relationships.

When inflation and interest rates starting steadily drifting down in 90s and early oughts, it was commonly seen as a deviation from the inflationary norm that would inevitably reverse, and some traders lost their shirts betting on inflations that never came. Now we've come to view near zero inflation and nominal interest rates as the norm, with the return of inflation being a deviation that will subside as things get back to normal.  I'm not so sure.

The closest historical parallel to the recent long deflation was the preww1 period from the 1880s to 1914, when nominal interest rates remained low and prices stayed relatively stable over the period.  The common denominator of the two historical periods is what we now call hyper-globalization:

• Widespread deployment of commercial steamships and oil burning ships + global rail building --> containerization and deployment of mega-container ships + multi-modal
• Integration of huge masses of people and resources from developing countries into the world economy through coercive high imperialism --> Integration of huge masses of people and resources of Asia into the world economy through the internal imperialism of coercive authoritarian states.
• Commonly accepted and stable global currency standard based on gold backed sterling ---> Commonly accepted and stable global currency standard based on Fed backed dollar
• Ideology favoring free flows of capital and traded goods across international boundaries.

When the prior period of globalization ended, inflation became endemic.  The current global economic system is not collapsing quite so drastically, but the trend towards de-globalization is unmistakable and is likely to endure for the foreseeable future.  While I think hyperinflation can be avoided barring extreme shocks, a return to the moderate levels of endemic inflation seen in the post WW2 period is likely.

[alfred russel]

Globalization if we are talking about agricultural products and manufactured goods may be strained, but globalization of services that is very difficult to measure / track is almost certainly accelerating.

Population growth is also inflationary, and that appears to be moderating or even reversing in some places. See Japan as a leader in this space.

[The Minsky Moment]

I don't agree population growth is inflationary as a general proposition; if that were true 1880-1914 would have been a high inflation era and it was the opposite. Population growth can be deflationary if it generates a large surplus of potential workers that can be controlled and put at the disposal of a globalized economy with freely moving capital.

When you have free flows of capital combined several hundred million people engaged in extremely low productivity agriculture and those people are released, controlled and made available to the global economy as a continuous supply of cheap labor, the overall effect can be deflationary.  If that continuous flow of surplus labor dries up and capital retreats to national boundaries, the opposite is more likely.

Services are tricky because some are tradable, and some are not.  Technology and globalization expanded the scope of potentially internationally tradable services (e.g. Indian call centers), but it's not clear to me that kind of globalization is going to continue to deepen.  And even if it does, demographic reversal will confine the exploitable scope.

[Zanza]

Is there really a trend towards de-globalization? Global trade volumes are still rising...

[crazy canuck]

AR, population growth grows an economy not inflation.  If population growth was itself inflationary Canada should have had inflation for the last 20 years because of our immigration policies.

[Sheilbh]

Is there really a trend towards de-globalization? Global trade volumes are still rising...

I think as a percentage of GDP it's been plateauing for a while and is trending down a bit now.

It may be relative but I think we're clearly not in the same world as the 90s until the financial crisis. I'm not sure what we're moving into. I think the factors Minsky flags are absolutely what marked that era's hyper-globalisation.

The other thing to wonder about, which is tied to Jake's thread a while ago is the role of Africa in any future economy. As ever I've no idea, but their population is going to be very large compared to where it is now which will have an effect - but it feels like they might miss at least this round of globalisation, or perhaps the next one is focused on and about Africa.

[crazy canuck]

Is there really a trend towards de-globalization? Global trade volumes are still rising...

Dance partners are changing leading to disruption of existing supply chains.  The big unknown though is the US and where their trade policies go in the next decade.  Do they become increasingly isolationist? Seems likely.