Prof Nouriel Roubini has been warning that "the current mix of persistently loose monetary, credit and fiscal policies will excessively stimulate aggregate demand and lead to inflationary overheating". "But now one can make a case that 'mild' stagflation is already underway. Inflation is rising in the US and many advanced economies, and growth is slowing sharply despite massive stimulus." "The price index for American consumer spending, also known as PCE index, rose at a rate of 4% in the year ended July, the fastest pace since January 1991. Stripping out food and energy items, the prices of which tend to be more volatile, the inflation index stood at 3.6%, flat from the month before and remaining at its highest level since March 1991," CNN. Most people in the developed world were used to order whatever they wanted and "then watch the goods arrive, without any thought about the factories, container ships and trucks involved in delivery", Economic Times (ET). No longer. "Delays, product shortages and rising costs continue to bedevil businesses large and small." "If the shortages persist well into next year, that could advance rising prices on a range of commodities." "An unexpected jump in orders for televisions in Canada or Japan exacerbates the shortage of computer chips, forcing auto manufacturers to slow production lines from South Korea to Germany to Brazil." "Before the pandemic, shipping a 40-foot container of games from Shanghai" to a warehouse in Michigan would cost $6,000 to $7,000. The next consignment in mid-September will cost at least $26,000 and may further rise to $35,000. "A supply chain crunch that was meant to be temporary now looks like it will last well into next year as the surging delta variant upends factory production in Asia and disrupts shipping, posing more shocks to the world economy," ET. "The cost of sending a container from Asia to Europe is about 10 times higher than in May 2020, while the cost from Shanghai to Los Angeles has grown more than sixfold, according to the Drewry World Container Index." On the other hand, "Copper and iron ore prices have been slammed....by demand worries as the coronavirus crisis wears on, while iron ore faces industry-specific pressure as China demands curbs on steel production, prompting questions about whether prices for the industrial metals can return to highs for the year," Business Insider. "The US Federal Reserve Chair Jerome Powell...said the central bank could begin reducing its monthly bond purchases this year, though it won't be in a hurry to begin raising interest rates thereafter," ET. "Tapering is the gradual slowing of the pace of the Fed's large scale asset purchases." "The aim is to slowly remove the monetary stimulus." In 2013, when former Fed Chair Ben Bernanke announced tapering of the Fed's bond buying program, "The pummelling in the markets sent the rupee reeling 3.7 percent to an all-time low of 68.85 with the unit closing just a touch off that, at 68.80/81 to the dollar, its biggest single-day fall since October 1995," Reuters. The stock market index the Sensex closed above 58,000 for the first time ever, Times of India (TOI). "The benchmark closed 277 points higher at 58,130 as foreign funds continued their buying spree. The Nifty on the NSE, too, rallied to a new high at above the 17,300 point mark, closing 89 points higher at 17,324." However, this time the Reserve Bank (RBI) has built a buffer. "India's foreign exchange reserves soared by $16.663 billion to touch a lifetime high of $633.558 billion in the week ended August 27, mainly due to increase in Special Drawing Rights (SDR) holdings, RBI data showed," ET. The problem is that India's GDP grew 20.1% in the April to June quarter of this financial year, compared to the same quarter of last year when it contracted by 24.4%, ET. Private consumption fell by 8.9%, government consumption fell by 24.9% and fixed investment by 15.2%, ET. A weak economy, soaring markets and tons of dollars. Strange mix.
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