Nowadays everyone is worried about inflation and no wonder why.
Having said that, the regulator should theoretically do everything to combat the inflation monster. The only question is how fast will they succeed or will they at all?
In order to get a better view of what is going on, it is crucial to understand where the current price bonanza comes from.
Without further ado, welcome the first culprit - the Fed itself: its balance sheet reached $9 trillion, from late February 2020 to April 2022 3.26 trillion treasuries and 1.34 trillion MBS were redeemed - a total change in the securities balance sheet of $4.6 trillion.
In other words, the “helicopter money” might have been not the best idea after all. It’s true that it helped the markets to recover, but it has also created a huge problem.
The second Horsemen of the Apocalypse could be considered the lack of supplies caused by the geopolitical situation, coronavirus pandemic, and logistical issues.
Starting from the latter, supply-chain logjams around the world are likely to persist for several more months with containers remaining as elusive as ever, according to the head of Canada’s second-largest port.
Longer loading and offloading slots are a key reason why Montreal has been spared the bottlenecks now commonplace at U.S. ports such as Los Angeles and Long Beach.
In the Cleveland Fed’s December 2021 survey, more than half of business contacts from the most-impacted industries (manufacturing, transportation, construction and real estate, and retail) said they expected relief during the second half of 2022, but nearly a third thought the disruption would last into 2023 or beyond.
In more recent conversations, however, contacts continued to stretch their timelines: In March, one executive from an engineering and construction management firm in Cincinnati, Ohio, said that he did not expect relief for another 18 to 24 months.
Now concerning Covid-19, China’s zero-COVID approach could end up hitting global supply chains once again. After all, Shanghai is home to the world’s largest port, and although it has largely remained open, trucks are struggling to unload cargo due to strict permit regulations, causing shipping containers to stack up.
It is worth mentioning that the US imported more goods from China than anywhere else in the world over the past decade.
The combination of these two factors suggests that combating inflation will not be an easy task. In the meantime, the most vulnerable ones will be hit harder.
In June 2020, UN Secretary-General António Guterres warned that the world stands on the brink of a food crisis worse than any seen for at least 50 years.
In May 2021, the UN released a report, according to which the number of people facing severe food shortages had risen to 155 million in 55 countries around the world.
This figure rose sharply, in part because of the economic turmoil associated with the pandemic. Wars and armed clashes have impoverished an additional 23 million people. To be fair, the increase in hunger and malnutrition has continued since 2017, when the first report was released.
Last November, China adopted a "food conservation action plan" covering all steps involved in one way or another in production, consumption, and disposal, which aims to minimize food loss and waste.
In short, the trend is clear. Now, as to the causes, apart from the pandemic, rising food prices have been attributed to weather factors, crop failures, disruptions in supply chains, and, of course, fertilizer shortages.
Back in October, Brazil's President Jair Bolsonaro said that rising costs and fertilizer shortages on world markets could lead to a food crisis in the country by 2022. He blamed the cause on the energy crisis and falling fertilizer production in China.
According to some predictions, the cessation of grain exports from Russia and Ukraine could trigger a mass famine in countries such as Egypt, Yemen, Lebanon, and Libya.
There is still no sign of a solution to the global food crisis, as potential grain exporters are now also concerned about supplying their own populations.
As for the potential beneficiaries of this situation, the livestock industry offers good investment opportunities. Fertilizer producers, especially UPL, PI Industries, and Bayer CropScience, could also gain.