Since the outbreak of the new crown epidemic in 2020, due to the strict epidemic prevention measures taken by various countries, the flow of people and goods transportation has been seriously blocked, the global logistics supply and demand imbalance, commodity prices have risen, and then the price increase tide has been transmitted from the upstream raw materials to the midstream factory production lines and downstream consumer terminals, and transmitted from the raw material producing countries to the consumer markets around the world, making the inflation crisis exciting.
After entering 2022, countries have successively adjusted their epidemic prevention policies, begun to coexist with the virus, and opened their doors and smoothed logistics channels, while the central banks of various countries led by the United States have also shifted their monetary policy from loose to tight, entered the interest rate hike cycle and started to reduce the balance sheet, hoping to curb the inflation rate that continues to rise. However, the outbreak of the Russian-Ukrainian war at the end of February and the international freight difficulties faced by China's major ports once again disrupted the global production and logistics system that is on the right track, plunging the world into an inflationary storm, and the high price of food is even more remarkable.
First, there is a possibility of recession in the US economy
Inflation in the U.S. climbed all the way up after breaching the 2% warning line in March 2021, with the CPI rising above 7% in December 2021 and the latest May 2022 CPI rising 8.6% annually, a 40-year high. Among them, the price of food has risen a lot. Data released by the U.S. Department of Labor recently showed that U.S. food prices rose 10.1% year-on-year in May; Among them, the price of household food rose by 11.9% year-on-year, the largest increase since April 1979.
U.S. Federal Reserve Chairman Jerome Powell said on June 22 that the Fed is firmly committed to bringing inflation down and is moving quickly to restore price stability. He also acknowledged the possibility of a recession in the U.S. economy.
When Powell attended the hearing of the US Senate Banking Committee on the same day, he said that the Fed realized that high inflation brought great difficulties to the people and was highly concerned about the risk of high inflation. With inflation well above the long-term target of 2% and the labor market in severely outstripping supply, the Fed has raised interest rates at its last three regular monetary policy meetings. Last week the Fed announced a 75 basis point rate hike, the largest rate hike in a single degree since 1994.
Democratic Senator Elizabeth Warren said at the hearing that the Fed's aggressive rate hikes would not help ease the supply chain shocks that pushed up gasoline and food prices, but could lead to a significant increase in unemployment. She wants the Fed to think carefully before "pushing the economy off a cliff."
Asked by lawmakers whether raising rates too much and too fast could lead to a recession, Powell said, "It's not the outcome the Fed wants, but it does."
Against the backdrop of persistently high inflation and an accelerated Interest Rate Hike by the Federal Reserve, economists' fears of a recession in the United States are heating up. According to an economist survey published by the Wall Street Journal, respondents believe that the probability of a recession in the next 12 months is 44%, up from 28% in the April survey.
Bill Dudley, former president of the Federal Reserve Bank of New York, said in a blooming opinion article on the 22nd that the US economy will "inevitably" fall into recession in the next 12 to 18 months.
Moreover, in this year's November midterm elections, inflation will undoubtedly be the number one issue for voters. To that end, President Joe Biden, whose support rating has long hovered low, is using every means to cool soaring prices. What has attracted much attention from the outside world is whether to cancel the tariffs imposed on some Chinese products, which has become a difficult choice for the current Biden administration to curb inflation.
Biden is currently getting the White House to step up discussions, but it is predicted that the White House will not make a decision until the June 26-28 Group of Seven summit. In fact, for more than half a year, whenever the United States published the inflation rate, Biden and his senior government officials would come out and claim that they would consider removing tariffs on some Chinese goods. The U-Top Research Institute issued a detailed analysis of the historical context since the Sino-US trade war and the possibility of tariff reduction for imported US pork:
Second, Western countries lead the global inflation storm
Since the beginning of this year, the global GDP has fallen short of expectations, economic uncertainty has intensified, in addition to the United States, the CPI data of various countries is not very optimistic, prices have risen more than expected, and the inflation rate has hit a new high in the calendar year.
Canadian meat and cooking oil prices soar 30%
The Neighboring Country of the United States, Canada, is also half a pound, and the situation is not optimistic. Statistics Canada's consumer price index (CPI) rose 7.7 percent in May from the same period last year, setting a new record for inflation since January 1983, according to data released by Statistics Canada on Wednesday (June 22).
Petrol prices rose about 12 percent month-on-month in May, contributing to a sustained rise in inflation, the Bureau of Statistics said. The Bureau of Statistics attributed the rise in crude oil prices to supply chain uncertainties caused by the Conflict between Russia and Ukraine, as well as the increase in tourism and demand caused by the relaxation of anti-epidemic measures.
Excluding gasoline, the year-on-year increase in CPI in May was also as high as 6.3%. Rising prices for hotel and catering services, food prices and housing costs are also important factors driving up the CPI. Retail food prices rose 9.7 percent year-over-year, with prices of edible fats and food oils rising to a record high of 30 percent.
High inflation levels continue to drive up the possibility of the Bank of Canada raising rates by 75 basis points when it negotiates interest rates in mid-July, even though monetary policy does not solve key problems such as supply chains. The Bank of Canada has raised interest rates three times in a row since March in an effort to curb inflation.
The ECB forecasts that food growth will sustain until 2023
Inflation rose to a 40-year high in May, with prices of a wide range of commodities such as fuel, electricity, food and beverages rising across the board. According to Agence France-Presse, the Office for National Statistics announced on Wednesday (June 22) that inflation in the UK rose to 9.1% in May from 9% a month ago.
According to the analysis, the rise in inflation is due to the continued sharp rise in food prices, and the price of gasoline has reached a record high, and the Bank of England expects inflation to exceed 11% in October as energy prices continue to rise.
In addition, according to preliminary statistics from Eurostat, the energy market continued to be volatile due to the Conflict between Russia and Ukraine, food prices soared, and the eurozone inflation rate reached a record high of 8.1% at an annual rate in May. Previously, many European countries have successively disclosed may CPI data, specifically:
Inflation rose again in France in May to 5.2 percent, breaking a record of less than 5 percent since September 1985.
On June 9, the latest report by the National Bureau of Statistics showed that Greece's inflation rate was as high as 11.3% in May, the highest in 29 years, mainly due to soaring energy, housing, transportation and food costs.
On June 10, the Danish government released data showing that the Danish Consumer Price Index, or CPI, rose 7.4 percent year-on-year in May, the highest level since May 1983.
On June 10, Spain's National Statistical Office released final data, and the country's inflation rate for May 2022 was 8.7%, 0.4 percentage points higher than the April inflation rate data.
On June 14, the German Federal Statistical Office released final data showing that Germany's annualized inflation rate reached 7.9% in May. Germany's Federal Statistical Office said the German inflation rate had been set for three consecutive months since German reunification. The main reason for high inflation remains the rise in the prices of energy products, food, etc.
On June 14, the Swedish Central Statistical Office released data showing that inflation rose to 7.2 percent in May, the highest since December 1991. Carl Mortensson, a statistician at the Swedish Central Bureau of Statistics, said in a press release that "rising food prices have a big impact on inflation", especially the sharp increase in the prices of meat, milk, cheese and eggs.
On June 14, the Finnish Broadcasting Corporation reported that inflation rose to 7 percent in May, the highest level since 1990. Rising electricity, fuel and food prices have fueled this growth.
On June 16, Italy's National Statistical Office released data showing that the country's consumer price index (including tobacco) in May increased by 6.8% year-on-year, the highest since November 1990.
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The Financial Times reported on the 21st that a report by the European Central Bank said that despite the huge scale of agriculture in the euro area, food prices for euro area consumers will continue to rise at a near-record rate for at least a year. In the year to April 2022, fertilizer costs in the EU soared by 151%, meaning food prices will continue to soar in 2023.
The report quoted the ECB as saying that eurozone food purchase and wholesale prices have soared by more than 40%, and it is expected that "in the coming months, price pressures will further affect consumer food prices in the euro area through the pricing chain".
Jennifer McKelon, head of global economy at Capital Economics, believes policymakers can no longer afford the luxury of ignoring food inflation, "especially given that the impact of food prices on inflation psychology is so clear and far-reaching". Jennifer predicts that if agricultural prices continue to rise, consumer spending in advanced economies will fall by 0.7 percent.
Third, the worst hour of food inflation in Asia has not yet arrived
Many Asian countries or regions have not been spared, and even Japan, which has been in deflation for many years, saw its CPI rise by 2% year-on-year in April, the first time in 13 years to stand on the Bank of Japan's inflation target.
Nomura said monday that food prices in Asia, excluding Japan, rose 5.9 percent year-on-year in May, up from 2.7 percent in December. Given the approximately 6-month lag between global food cost changes and their impact on Asia, food price growth in Asia should accelerate in the second half of the year. Issues such as lockdowns, swine fever outbreaks in Thailand and high temperatures in India have exacerbated food prices.
"Consumers' perceptions of inflation are strongly influenced by the prices of everyday necessities such as food, which may lead to an increase in inflation expectations," Nomura Reported. Nomura added that Jakarta and Manila have had to raise the minimum wage to cope with rising costs of living.
Inflation has spread from grains and cooking oils to other product categories such as meat and processed foods. As countries seek alternatives to high-priced wheat, rice could be the next category to skyrocket, although rice prices have so far remained stable due to abundant stocks.
Sri Lankan Prime Minister Viklemasingha announced in Parliament on Wednesday local time that sri lanka's debt-laden economy has "collapsed" recently because it has been unable to buy necessities such as imported food, fuel and medicine. The crisis facing Sri Lanka is almost all-encompassing, of which the food crisis is the most important that cannot be ignored, which is also the epitome of the severe inflation crisis that the world is experiencing in this round.
Inflation is relatively modest, but China should not let its guard down
Among the major economies, only the mainland has maintained a moderate inflation rate of about 2%, which is enviable. Although China's moderate inflation rate has added fuel to its own economic recovery, it is still necessary to pay attention to some problems in the price data when judging the economic situation on the mainland.
Judging the situation of inflation on the mainland, it mainly depends on the changes in the CPI (consumer price index) and PPI (producer price index) data, the CPI reflects the price fluctuations in the field of people's livelihood, and the PPI shows the price changes in industrial production. However, most countries in the world use the CPI as the main basis for inflation, and in general, the development countries set the warning line for the rate to increase by 2% per year in the CPI, and in emerging countries by 3% per year.
As the world's factory and a consumer market of 1.4 billion people, the continent should be caught in this "perfect storm" of global inflation, but unexpectedly, the mainland's CPI annual growth rate has remained at a low level of about 2%. In the first five months of 2022, the mainland's CPI increased by 0.9%, 0.9%, 1.5%, 2.1% and 2.1% respectively, and the cumulative annual increase in the first five months was 1.5%. According to the State Council's "Government Work Report", the CPI increase target for 2022 is about 3%, and from the trend of the first half of the year, it is expected that the annual CPI increase will not exceed the government target. It is worth noting that just as the growth rate of CPI in Europe and the United States hit a new high, the price of goods in the mainland in May did not increase or decrease compared with April, and the CPI was 0.2% per month.
However, the overall price of our country seems to be stable, but whether it reflects the actual inflation situation remains to be dialectical, the key lies in the calculation of the CPI. The way of calculating CPI varies from country to country, some countries select more than 1,000 items for calculation, while our country selects eight categories and 262 categories of goods and services prices; In terms of weights, the U.S. CPI is the largest for residential and transportation, with a weight of 59%; Although the National Bureau of Statistics has not officially announced the CPI weight, it still has the largest number of tobacco, alcohol and food, of which pork has the largest proportion.
As we all know, the domestic pork price has been sluggish in the past two years. In January 2020, the domestic pork per kilogram was about 50 yuan, but in June 2021 it has fallen to around 20 yuan, march to April 2022 in the trough of 17 to 18 yuan, although it rebounded near 21 yuan in May, but it is still lower than the 30 yuan price in the same period last year, becoming the main reason for the decrease in the increase in CPI in May, and such a single commodity is highly affected by CPI data, whether it can truthfully reflect the overall price level has been the focus of expert discussion.
Looking ahead, public opinion believes that geopolitical conflicts are still disrupting the international energy and food markets, and China still needs to maintain a high degree of vigilance against imported inflation.
Fifth, the US economic recession is conducive to lowering food prices and conducive to Chinese procurement
At a macro level:
On the one hand, in today's highly integrated global economy and trade, the United States and China, as the world's first and second largest economies, serve as the first or second trading partners, and if one side declines, the other side will definitely be affected. There is no doubt about it.
On the other hand, the different systems, different governance concepts, and different financial and monetary policies between China and the United States have formed a "firewall" and "breakwater" between China and the United States. And it is believed that the Chinese top level has given full consideration to major issues such as whether the US economy will fall into recession and how to deal with the recession if so. Therefore, whether it is a crisis or a recession in the United States, the impact on China will be weakened.
From the perspective of this industry, the main impacts are:
First, the US recession will drag down US consumption and therefore affect China's agricultural exports, especially in categories such as aquatic products.
Second, if U.S. consumption is sluggish, it will help to smooth out high prices.
Third, the decline of the United States will become more dependent on overseas markets, so it will help China to be in a more favorable position in the trade of US agricultural products to China, and the price will be further reduced.
On the whole, if the United States declines in the future, and China's economic conditions are better, it is entirely possible to form such a pattern:
China's food consumption market is strong, while the output of US agricultural products has not decreased, and exports have increased, resulting in the growth of US agricultural products exported to China against the trend.
This is the situation that Chinese importer friends are most willing to see.
Thanks Ella for the information
Some information sources: Xinhua News Agency, Overseas Net, Financial Associated Press, Lianhe Zaobao, The Paper, 21st Century Business Herald, Sino-Singapore Jingwei