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October 17, 2021 | Inflation Is A Problem Here But An Existential Threat Over There

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.

Here in the US, prices are rising, packages are shrinking and shelves are emptying. This is annoying, but it’s not (yet) the stuff of revolutions.

The same, alas, can’t be said for some other places. One of the Wall Street Journal’s many recent articles on inflation contains this ominous section (emphasis added):

The large central banks are relying on households showing faith in their track records of keeping inflation low, and the expectation that there are enough under-utilized workers available to keep wage rises in check.

Other monetary authorities aren’t sure that they have yet earned that kind of credibility as inflation fighters, and see a higher risk that wage rises will surge. In poorer countries, a larger share of spending usually also goes to essentials such as food and energy that have seen the largest price rises, so policy makers are quicker to tamp down on inflation.

emerging market inflation

Chile’s central bank on Wednesday increased its interest rate by one and a quarter percentage points to 2.75%, surprising economists with its biggest rate increase in 20 years.

Of the 38 central banks tracked by the Bank for International Settlements, 13 have raised their key rate at least once. In October, the central banks of New Zealand, Poland and Romania increased borrowing costs for the first time since the pandemic struck. Singapore, which tightens policy by nudging its exchange rate higher, joined that group Thursday.

This explains why the Fed and ECB can dither over whether to even start tapering, let alone raising interest rates, while some developing countries feel compelled to act. Put another way, the places with the highest inflation are also the places least able to cope with it.

Will the rich countries be okay in a world where big parts of Latin America and the Middle East are in the throes of inflation-driven revolution? Maybe not. Those places produce a lot of what the US and Europe import. Break their supply chains, and our 5% transitory inflation becomes 10% sustained. And our central banks start acting like Chile’s.

Add emerging market instability to China’s imploding real estate market  and OPEC’s seeming inability to cap the price of oil, and you get a world where there are no safe havens.


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October 17th, 2021

Posted In: John Rubino Substack

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