Global inflation on the rise

Pimco Aug08.jpg

Pimco, the world’s largest bond investors, are worried about rising inflation. Their main concern is that many Asian and Middle Eastern countries had ‘anchored’ their currency to the US$. ‘With that anchor gone’, they comment, ‘due to the US Federal Reserve’s focus on preventing the US financial system from falling into a depression-style downward spiral, many countries find themselves anchorless’. They regard this as ‘wholly inappropriate for emerging markets that are growing in aggregate around 7%, and whose inflation has picked up to double digits in many cases’.Their concern is summarised in the above chart, which shows that ‘real’ interest rates (adjusting for inflation) are now negative in most parts of the world. They add that a ‘wage-price spiral’ is now underway in emerging countries, where wages surged 13.2% in Q1 versus 2007. And, of course, higher inflation in emerging countries translates into higher prices for their exports to the West. This all puts more pressure on already hard-pressed consumers, which cannot be good news for chemical sales.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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