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Inflation – Asia, Southern Hemisphere

Posted by Adrian on February 13, 2008

A friend mine runs a medium size business, she is a professional in her field of work, a few days ago we had a coffee, mine was espresso, or short black; she bought a cappuccino. I don’t usually like the coffees I have been buying recently, firstly they are overpriced, without a fresh grind, it is obvious that the ‘portafilter’ hasn’t been banged out – so they try and get as much out of the one grind. The cafe is reasonably filled for a smallish space. In other words there is a steady flow of customers. During our coffee meet up, she mentioned to me how (joking), ‘as busy as I am you would think I should be a comfortable millionaire’.

Australia and South America, like Asia, like Europe and not to forget the stagflation recession of the US, are all suffering from inflation. Some more extreme then others. A global issue, that has eventuated into a serious disposition for the global populous. The ‘global boom’ was supposed to instill a general wealth, but instead high inflation has eroded wealth. Prices have spiraled upward. More money used to purchase, pushing prices further up, interest rates either go up (attempt to contain inflation) or go down (if you live in the US and the UK). In hyperinflation even saving rates are unattainable, even if interest is high, due to the fact more money is used to purchase than save, so cash term deposits become a luxury. As more money is flooded into the economy, inflation becomes more serious. Individual or consumer wealth becomes stagnant or negligible as the purchasing power of currencies lose value.

A kinda fucked up situation.

Worst, when governments and Reserve Banks lie, brush off, play down, mess with the figures in regards too inflation risks. The Federal Reserve and chairperson Ben Benanake have been accused of this, either not fully enclosing all inflated prices in the ‘basket’ assessments of CPI; or playing with the figures to fit a favorable inflation rate. Inflation could be higher than most reserve banks would like to admit, at the same time (as I mentioned earlier) wealth becomes stagnant and purchasing power diminishing on a larger, almost uncontrollable scale.

A good example of a government cooking the ‘inflation’ books is Argentina, after massive deflation in the early 90’s. The country has contributed to the Chinese export boom and is still one of the major trading partners with China. Argentina falls under the fading theory of decoupling from a US protracted recession, other countries that fall under the ‘decoupling’ theory are Australia, Chile, Brazil and other mining export countries from South America. I do not believe in the decoupling theory at all, as global inflation is a very good indicator that the markets are intrinsically connected.

In regards to the Argentinian inflation figures being fudged, from Financial Times online ‘IMF asks Argentina to clarify inflation’ figures times online:

“Private economists and shoppers say rising prices are not reflected in official statistics, but the government denies widespread allegations that it has manipulated the figures in a bid to mask mounting inflation.

In January, Ms Edwin (head of Argentina’s statistical institute, Indec) defended official data as “absolutely trustworthy” after dissident Indec workers published their own 2007 inf-lation estimates of between 22.3 per cent and 26.2 per cent – up to four times the official 8.5 per cent rate.

Indec last week reported prices rose 0.9 per cent in January compared with the previous month. Market expectations had been for a rise of up to 1.5 per cent.

“Indec’s performance is just a joke. It started as a little lie and it’s snowballed,” says Eduardo Fracchia, director of the economics department at Argentine business school IAE.”

Below is a graph of the Australian All Ords and Argentinian Merval index over a 3mth period, both trading under similar % range, which is trading below or negative.

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Singapore is trying to juggle high inflation and a slowing recessionary US economy, with tax cuts and hand outs, similar to George Bush’s fiscal stimulus plan.

‘Southern Hemisphere Singapore budget to tackle 25-yr high inflation’

“The Singapore economy is slowing on the back of an ailing U.S. economy, so analysts expect the government’s budget to assuage growth fears by sharpening the island’s competitive edge.

But its main focus will be on the politically sensitive issue of the rising cost of living — a concern from the United States to Hong Kong.”
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2 Responses to “Inflation – Asia, Southern Hemisphere”

  1. […] their meat export markets. But, with inflation being ignored again, or being played down (especially in regards to Argentina) higher costs for energy could be the dramatic market damper. Could a new energy crisis emerge in […]

  2. […] in Argentina, Brazil high inflation, energy issues could lead to sharp decline on Stockmarket and Inflation – Asia, Southern Hemisphere. China has just cut it’s rates as all the central banks have cut rates at the same time – […]

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