Interest rates

Inflation is here to stay despite rising interest rates, Asian business leaders warn

Consumer goods inflation will persist as the “new normal” as the global economy undergoes structural change, Asian business leaders warn.

While rising interest rates could eventually temper asset prices, deglobalization and decarbonization could continue to drive up the costs of consumer staples, said V. Shankar, managing director of the investment manager in emerging markets Gateway Partners.

Inflation is here to stay in hell or high tide regardless of what central banks do, because there are intractable structural issues that have driven prices higher,” Shankar said Monday during the Forbes Global CEO Conference in Singapore.

“Despite helicopter money and zero interest rates, the reason commodity prices have remained low for so long is due to a vast efficient manufacturing agent called China and the integration of global supply chains. .”

This integration paved the way for cheaper products. But now, catalyzed by the pandemic, new threats are hanging over intertwined global supply chains as countries seek to bring manufacturing back to their own country or countries they are friends with, Shankar said.

In July, US Treasury Secretary Janet Yellen touted the need to build supply chain resilience through “friendship shoring” – doing business with countries that share values ​​with Washington.

This collapses globalization and raises prices because manufacturing will no longer be based on considerations of numbers and cost, Shankar added.

Decarbonization efforts will also contribute to higher prices, Shankar said, as the supply of components for climate-friendly products is not sufficient to meet demand.

For example, the global production and consumption of graphite for electric vehicle batteries was 1 million tons last year, but in 10 years this could reach 5 million tons. There’s no indication of where that extra production will come from, Shankar says.

“If you look at the fossil fuel industry, it’s investing at a rate like we’re going to a net zero economy by 2035, while the renewable energy industry is investing at a rate of about a third of what is necessary for a net zero economy by 2050,” he said.

“There is an inevitable train crash and political and societal pressures collide with the economy. So inflation is here to stay.

Ho Kwon Ping, executive chairman of Singapore-based multinational hotel group Banyan Tree Holdings, agrees, saying higher interest rates are not the new norm, but zero or low interest rates are “abnormal”. “.

I think a real anomalous situation was the period we went through where central banks and others maybe now, in retrospect, overreacted and we had too long a period of zero interest rates or even negative,” Ho said.

“The world will, in my opinion, probably go back to a long-term situation of low interest rates and hopefully low inflation, but zero inflation, zero interest rates, that’s the abnormality, and not the future we are looking at.”

US-China tensions
Whether it’s de-globalization or decarbonization, these concerns are underscored by the growing rivalry between the United States and China, the potential splitting of global trade and affairs into two blocs, and the need to take sides.

Ho said many business leaders in Asia-Pacific and other parts of the world have had to start “scenario planning” to ease potential sanctions against China.

Even China itself is gearing up to be self-sufficient in key areas such as securing sufficient supplies of energy, food and essential goods, Ho adds.

“What I find really strange is this very aggressive decoupling between China and the rest of the world, from each other,” Ho said.
“For those of us who have operations in over 20 countries, I’m just having trouble understanding where I’m going to be pressured from – to not do business with certain countries or to do business with certain companies. And being caught in that. I think it’s very uncomfortable.

The world’s business leaders may have to give up “the luxury of thinking” that the United States and China will get back together, Ho said.

Chairul Tanjung, chairman of CT Corp, one of Indonesia’s largest conglomerates, urged countries to consider a new framework to work better together.

“Now everyone, every country is trying to solve their own problem, trying to ‘win’ the situation,” Tanjung said.

He added that a crucial way forward is to focus on critical global issues such as climate change.
Source: CNBC