Inflation isn’t just rising in Saudi Arabia, Russia and China
Saudi inflation is rising
Chinese inflation is rising. (see p. 74)
Russian inflation may not be rising, but it sure isn't falling either. It looks set to overshoot the government's target.
Dollar pegs in the emerging world are rather clearly no longer disinflationary — or a source of "imported" monetary discipline.
And it sure seems that — judging from this Wall Street Journal article – the US college student CPI is set to rise. (hat tip Abnormal Returns)
This isn't just a Friday afternoon post. There is an international economics angle in the Wall Street Journal article — two really.
It seems like US microbreweries are substituting Oregon hops for Bavarian and Czech hops. International adjustment in action!
And the same forces that are pushing up prices in China and Saudi Arabia are also having an impact on the college CPI. China is booming, helping to keep oil prices high. Oil prices support high spending and investment (especially with negative or near-negative real interest rates) in the oil-exporting economies, driving Saudi and Russian inflation up. Corn is a substitute for oil (ethanol). And if corn prices go up and wheat and barley prices don't, farmers will plant more corn and less wheat and barley. Throw in a bit of bad weather and China ends up driving up the price of beer …
When Chinese domestic prices exceeds export prices it will switch export capacity to domestic consumption, no? This already happened for most basic materials (steel may be a temporary exception. And for food and manufactured goods, you can actually expect to pay more for comparable items in Chinese cities. Seems to me rising wages in China will be the better path to adjustments.
Official U.S. Inflation Statistics Are Inaccurate
http://www.safehaven.com/article-8553.htm
In actuality, officially benign inflation statistics (which are coming at a time when actual inflation is getting worse) give the Fed further cover to create even more inflation. So the dollar is not weak because inflation is under control as the consensus believes, but because the opposite is true. Inflation is completely out of control and the Fed, hiding behind phony government numbers that purport otherwise, has the green light to add additional fuel to inflation’s fire. It’s the ultimate irony that the lower the official preferred measures of inflation are (core CPI or the core Personal Consumption Expenditure Index,) the worse inflation actually gets.
If bad things are going to happen to the US economy as so many predict I can only say they are a long long time in coming. Granted subprime mortgages have been a disaster, but inflation, the last I saw, was still below 2%, whatever some people want to believe, the stock market is going great guns, employment is up, etc., etc. I would like to be a bear, but I need something more to be bearish about.
It is not just a Friday afternoon post but it deals with beer anyway…
As long as US forcefeed credit monster (300 billion GSE balance sheet expansion in last 10 weeks) we will see more crazier things. Turkish currency is its way to parity with USD.
Good Job Mr. Paulson
Wow. If college kids really are impacted by the price of microbrews, then maybe Americans really do consume too much. I’m not sure if the beer that I drank in college, Olympia and Schaefer, even contained hops….
They don’t care that we can’t eat CORE, and we can’t burn CORE for heat, and we can’t drive CORE to the store to buy expensive meat. So each month the BEA puts out the CORE PCE, for the consumer that’s the same as a non-sedated colonoscopy!
Please correct me if I’m wrong, but inflation is just another term for liquidity growth, right? So if you “print” more US$ that should increase the liquidity in the US (at least as longs as the new USDs are staying there) and therefor should result in higher inflation.
As far as I understand there are different kinds of inflation, mainly classic inflation (goods/services) and asset inflation. By checking which kinds of inflation surges you can see where the liquidity flows. We’ve obviously asset inflation and inflation on commodities. But still surprisingly low inflation on “CORE stuff”. That shows where the excess liquidity flows: To investors. Passing consumers by. And consumers a confronted with shrinking liquidity in the future (mortgage crises). That means the FED can even pump more liquidity into the markets without risking higher “CORE inflation”. And I bet they will do. Conclusio: The poorer the people the more liquidity they get => higher asset inflation => higher stocks indices => lower US$.
Only question: Why should somebody buy US$ now? Or if I need to keep or buy huge amounts of US$ now (for any reason) where could I hedge them? Does the FED or the government offer some kind of US$ hedging for big investors like Asian CDs? They could do easily without any costs nor risks.
Another idea regarding how to hedge trillions of US$ treasuries in Asian CBs:
Supposing that for each US$ only one person carries the risk of depreciation ot that’s not possible that more then one person carries 100% of this risk. Let’s take Japan as instance. They’re delivering goods in excess to the US, receiving US$ Cash ($100), buying Treasuries ($100). That doesn’t change too much, they still carry the risk of depreciation for $100.
But if they convince now somebody to buy $100 against Yen who wouldn’t do that anyway, this somebody takes over their risk by upvalueing the US$ against yen. Carry trade.
This somebody carries the US$ risk till he buys yen back. His fee of the hedge (cost for BOJ) is the yield spread.
Maybe I’m wrong at some point - or the carry trade has this deeper sense.
more money — all other things being equal — generally will result in more (goods) price inflation, but the relationship isn’t one to one. demand for cash increases as the economy grows, and can even grow faster than the economy (this seems to be the case for china I think which, is one reason why there hasn’t been more inflation). “liquidity” is a nebulous concept that has a host of different meanings, but one meaning is close to “money growth”. Central bank liquidity injections tend to increase the money supply.
Asian central banks generally are holding $ because there isn’t sufficient demand for them — so it is hard for them to hedge without changing the market. Hedging some $ exposure by swapping it for euros is possible, but there are limits. and if the japanese started “hedging” the $ exposure of the MOF (the exposure v. the yen) they might as well just unwind trade. sell the $ for yen and pay back the yen loan used to finance the initial $ purchase. If the BoJ/ MoF could do so without moving the market, they (unlike most asian central banks) would have made a nice little profit.
Macroman — if Mommy and daddy can afford to pay 30k in tuition, i assume that they can spring for beer with hops …
But i did take a bit of literary licence on a friday afternoon. One of the points that the WSJ article makes is that beers made with less barley and fewer hops (think macro brews) are facing less price pressure than the microbrews.
On topic this time, and sorry for the last:
The main problem is that SamAdams Seasonal (or even lugger, though I prefer bitter) in Boston area, and McSorley’s in NYC are far-far better that Budweiser (in the US brands, as they all are quite bad; the Czech is much better). And they are at about the same price, even cheaper in real beer pubs.
Here, in Spain the ordinary beer is so bad that I explore beers, that when I’m abroad I try several brands to choose the right one. And really, in UK and USA you have very good beers, at much better prices that here (they overcharge them under the imported label), as we have better wines for the price than you. Anyway, nobody can defeat Czech beers in quality v price.
I expect that globalization won’t end with it all.And to add to your right comment to MM, Brad, about the 30k tuition (Times They Are a Changing, but MM likes ironic humor), I was very impressed that far out from Cambridge area in Boston, in the so-called good universities like Dartmouth College of New Hampshire, lots of students had 30k+ cars parked in front of their building, because they hadn’t a dancing room at the university, and after years of hopeless fights, they need the car to drive to the next city and expend the night with the mate in a road motel on saturday nights.
But this misallocation of resources will bring more troubles in the near future and not only monetary troubles:
Even the MSM and big oil heads start to say what they don’t want to say:
http://www.theoildrum.com/node/3053#more
Sooner or later you’ll meet the truth face by face, said the sentence, but this is not a Neville Brothers song.
Best regards and keep on both of you.
One more thing, I’d like to ask you, that I find out of topic but interesting in this US/EU collaboration / fight / decoupling and so on:
— Is Europessimism Justified?
http://economistsview.typepad.com/economistsview/2007/10/is-europessimis.html
Thank you!
US Multinational firms view China manufacturing as too expensive, look to shift to India
http://www.sinodaily.com/2006/071007032048.gy2i8vrn.html
The lead factor driving India’s new manufacturing popularity is price, he said. Some of the main manufacturing sites in China are becoming too pricey.
Chinese manufacturing wages are 250 to 350 dollars a month whereas they average 100 to 200 dollars per month or lower in Thailand and other parts of Asia. In India factory jobs start at 60 dollars a month.
Right now, China’s share of the world’s manufacturing exports is more than eight percent while India stands at just under one percent.
But “the interest of global manufacturers in manufacturing in India is very high compared to China. In terms of trend there will definitely be a move. China has a reason to be worried,” Lenders said.
However, India must improve its infrastructure with nearly half of the firms surveyed that had already outsourced manufacturing to India complaining about a lack of manufacturing and supply chain infrastructure.
India’s ramshackle infrastructure of potholed roads, dilapidated ports, shabby airports and erratic power is regularly cited as an obstacle to economic growth along with the maze of red tape.
For the record, with the exception of my employer 401K which doesn’t provide me with the option of global diversification, I have completely unloaded GNMA bond securities from my personal portfolio. Is a dereliction of duty for the Federal Reserve to actively ignore the implications of higher US inflation in energy, food, and commodity prices. Any long-term investor should immediately consider unloading their US dollar positions given the rapid loss of monetary purchasing power in those investments. The Federal Reserve has discontinued public release of the broad M-3 money supply statistics, estimated to be inflating at an explosive 15 percent annual rate, in order to hide its massive liquidity bubble expansion. In net effect, Helicopter Ben is planting the seeds for US hyperinflation in the not too distant future.
Oops, Correction.
For the record, with the exception of my employer 401K which doesn’t provide me with the option of global diversification, I have completely unloaded GNMA bond securities from my personal portfolio. It is a dereliction of duty for the Federal Reserve to actively ignore the implications of higher US inflation in energy, food, and commodity prices. Any long-term investor should immediately consider unloading their US dollar positions given the rapid loss of monetary purchasing power in those investments. The Federal Reserve has discontinued public release of the broad M-3 money supply statistics, estimated to be inflating at an explosive 15 percent annual rate, in order to hide its massive liquidity bubble expansion. In net effect, Helicopter Ben is planting the seeds for US hyperinflation in the not too distant future.
maybe i am getting paranoid - but this site runs on my computer (a macintosh in a tower house in tipperary, ireland ) at about one tenth speed. did i say something to offend the f b i , the pentagon, or homeland security ? hope so, but would they really be bothered with me ?
the only other site affected is my own blog, i am locked out of it, nor can i create a new blog. any other sufferers ?
gillies
http://darkbrownriver.blogspot.com/
Hi, gillies,
I’m using a mac with safari and no problems at all. Anyway, f b i should work much better than they usually do to slow your conection to a couple of websites and no others. Technically imposible without programing your ISP servers to those IP adresses, I think.
Try it with firefox or camino first, and if the problem persists, bring home some friend with a laptop to check if his computer has the same problem.
If firefox or camino work well, clean the cache of safari (in file menu).
Don’t get too paranoid with it. Computers make a lot of strage things from time to time. You have to discover the root of the problem and sometimes it’s not easy or logicall at all.
Best wishes
Ha glad to see some Singaporean Research articles being quoted in an well known international forum.
Anyway, its undeniable that whatever China buys, the price goes up. But then again, thats the fundamentals of economics right? Basic demand and supply mechanics. So does that make the Chinese culpable for the misalignment in liquidity and therein malfunctioning pricing mechanism? If so, why not we suggest that the fiat monetary system be gone? Then there will be no inflation, fiat monetary wise.
Like DC has mentioned, even if the Chinese allows a free float on her CNY (some use RMB), unmistakably there are bound to be some effects on the trade balances or watever thats being measured in dollars and sense, however, in the long run, the deficit is bound to persists. Why? Because, the red numbers on a trade balance sheet simply reflects the underlying fundamentals that are miskewed. For simplicity, if today my bank account is negative because of my overspending, irregardless whether the bank decides to charge a lower interest rate or the government decides to change the denomination of the currency, I am still negative. Unless my consumption or income patterns change, otherwise im still negative!
Trade patterns do not change just by mere appreciation/depreciation of a currency overnight. This US trade deficit has been ongoing for years and the US can neither stop consuming nor stop producing. So if Chinese becomes pricier, shall we go for the Indians, the Thais, the Burmese or whoever else thats cheaper. And one fine day, when our trade numbers with that particular partner becomes “big”, shall we just change to another? And so this process goes on and on, manifested in some grand rhetoric or nationalistic charade. Then again, that’s also basic economics rite? Market efficiency in a free market?
And so, unless, the US decides to do some basic housekeeping, the deficit will continue. It will take a miracle, a big one, for the burgeoning red numbers to disappear merely by some terms of trade alchemy. A leaking ship will ultimately sink, irregardless of the size and shape of the hole, unless the captain chooses to plug it or chooses to end its journey.
What does “dollar peg” means?
What would be consequences of a country Pegging or not pegging its currency to dollar?
Thanks
$ peg means that your currency moves with the dollar, so it goes down with the $ and up with $. It also generally means that your interest rates move in line with US rates, going up or down with us rates, tho this is less certain (it depends on the presence of capital controls among other things, and the presence of an undervaluation or over valuation). a country that pegs to the $ at a below market rate also generally needs to add to its reserves to sustain its existing exchange rate.
Dollar pegs certainly don’t make as much sense as they used to in the days when developing nations tended to run trade and current account deficits against developed nations. Back then the dollar peg acted to restrain domestic monetary creation and prevent inflation. In the 1970s and 1980s it was widely assumed that the Fed would have a tighter, less inflationary monetary stance than local politicians or bankers might do.
By contrast, the nations now pegging to the dollar tend to run huge trade and current account surpluses. They end up importing inflation from the USA. And the Fed is now incontinent in creating more and more dollar liquidity.
Brad, I’ve been wondering whether conditions are getting to resemble pre-WWI “beggar thy neighbour” with competitive devaluations of currencies pegged to the dollar or currencies competing with dollar pegs. Everyone seems to be playing a game of currency limbo, trying to get under the dollar as it moves lower and lower.
Given the disasterous consequences for the world the last time we saw such a self-reinforcing destructive dynamic in action, I worry that this game isn’t sustainable and will end in confrontation. I expect “blame the foreigners” to start echoing again soon.
london banker — well, rather than competitive devaliuations, i think we have competitive reserve accumulation, with lots countries unwilling to let their currencies appreciate v the $ (and happy to depreciate v europe). I don’t get why the middle east thinks a weaker currency is in their interest, but they seem to — and the others are very worried about appreciating v china. i think the core problem is that a lot of the world is pegged to an inappropriate anchor, but that peg turned out to have some positive short-term effects so they stuck to it. now some of the costs are more visible.
I think the real “peg” should be with the commodity/resource supplier country. They in effect are the safest place to “hedge” your assets. The manufacturer will pay what the consumer will bear no matter the currency. I am moving my cd’s to canada and brazil from the usa 9,999 at a time
Russian inflation is also on the rise - 0.5% for the firts week of October.
Consensus is that it will be >10% for the year.
CBR offcially said that there is little it can do about it.
The man who has made up his mind to win will never say ” Impossible”.
HiBe wishes。Allow me to offer my heartiest wishes. The best of luck! Best wishes! Best regards!
Just because someone doesn’t‘t love you the way you want them to, doesn’t‘t mean
they don‘t love you with all they have.
çˆ±ä½ çš„äººå¦‚æžœæ²¡æœ‰æŒ‰ä½ æ‰€å¸Œæœ›çš„æ–¹å¼æ¥çˆ±ä½ ，那并ä¸ä»£è¡¨ä»–们没有全心全æ„地爱ä½
|å°çƒæ†|论文å‘表|钢管-æ— ç¼ç®¡-æ— ç¼é’¢ç®¡åšå®¢|网站建设推广|网站优化|网站优化|google排å|