Watching Currencies – AUD/JPY

Correlations – AUD/JPY and the Australian Inflation Rate

September 5, 2022
by Rob Zdravevski
rob@karriasset.com.au

Australian Inflation Correlations (Natural Gas prices)

As an addendum to last week’s note about elevated Natural Gas (US$ Henry Hub) prices,

here is a chart pitching those American gas prices against the Australian inflation rate, aiding my call for moderation.

September 3, 2022

by Rob Zdravevski

rob@karriasset.com.au

Taming inflation, ask Brazil

Brazil was amongst the first of nations to commence raising interest rates.

They started from a base of 2% in March 2021.

At its August 3, 2022 meeting, Brazil’s Central bank increased interest rates a further 50 basis points bringing its rate to 13.75%.

This was the 12th consecutive raise making for a cumulative 1,175 basis point increase.

This represents a quantum of nearly 7 fold increase.

Brazil’s inflation rate in July 2022 fell to 10.1%, down from June’s 11.9% reading.

Incidentally, Brazil’s inflation target rate is 3.5%.

In contrast, the U.S. Fed Funds Rate has risen from 0.25% to its current 2.5% representing a 10 fold increase. The current inflation rate in the United States is 8.5%.

Is the quantum of the rate increase more relevant rather than the absolute percentage rate?

If so, will one more rate hike in the U.S. be enough?

Brazil, Chile, Mexico and other commodity sensitive and exporting countries all started raising interest rates, aggressively and a year before G8 nations.

Why?

As paraphrased in the following posts written over the past year, “inflation is a tax that the poor can’t afford to pay”.

Although, more precisely, the citizens of those nations carry an average household debt as a percentage of GDP nearing 26%.

While the “% of household debt to GDP” for the citizens in the United States, Canada, United Kingdom and Australia range from 80% to 125%, with Australian’s being the highest.

For the rising cost of tomatoes, fuel or lettuce…..hiking rates too aggressively would ‘crucify’ the indebted households in the developed world and more importantly (for some, many or government) it would stifle their largest asset class………residential real estate.

August 27, 2022

by Rob Zdravevski

rob@karriasset.com.au

Crude Oil leads

Moves in Crude Oil seems to lead the next move in Australian inflation and the Australian 2 year bond yield.

August 17, 2022

by Rob Zdravevski

rob@karriasset.com.au

China’s climate policy in disguise

I heard of import tariffs but not export tariffs

Is exporting inflation, China’s new ‘weapon’?

Maybe this is part of China’s net zero emission plan?




Would you like to know why HRC (hot rolled coil steel) prices have quadrupled in the past year?





The world’s largest steel producing nation has been imposing and increasing tariffs on its own steel exports.

I’ll repeat, Chinese companies are required to pay a tariff in order to export their product.

High purity Pig Iron exports attract a 20% tariff while Ferrochrome stands at 40%.
Furthermore, China has removed export tax rebates for 23 steel products including flat and rolled steel)

This is quite incredible. 

It is quite normal for nations to impose a tariff on goods being imported onto their shores and limit ‘product dumping’ but to ‘discourage’ your own corporations from global competition and profits is an extraordinary tactic.

In 2020, total world crude steel production was 1877.5 million tonnes (Mt). The biggest steel producing country is currently China, which accounted for 57% of world steel production in 2020.

The next 6 countries (regions) account for a combined 28.4%. 

They are:
#1 EU  7.4%
#2 India  5.3%
#3  Japan  4.4%
#4 U.S. 3.9%
#5 Russia  3.8%
#6  South Korea  3.6%
.
.
.
.
#29 Australia 0.3%

Australia’s annual steel production is 5.5Mt, ranking behind the production of Bangladesh, Austria, Malaysia and Belgium.

One-third of Australia’s steel needs (nearly 2Mt) are imported, with most it coming from China. The rest is supplied by local manufacturers such as Bluescope Steel.

So, the news becomes even more alarming when the amount of steel imported from China has fallen by 50% in the past several months.

Can you see how half of 2Mt is a pittance of China’s 1,065Mt worth of annual production yet it has a pronounced effect on Australian business.

But what is China export tariff strategy telling us?

Firstly, China is ‘ring-fencing’ some its industrial production perhaps its seen as a form of ’nationalism’ but more so, I see it as securing or better yet, retaining its supply for its own consumption.

This could also be a measure of protectionism, but this is not new because western economies already do it themselves.

When you have a powerful (and enviable) position such global ‘market share’, you can withhold supply, causing localised prices to rise, thus hurting industry and consumers in far away locales.

Whilst imposing tariffs of steel exports will accentuate output gaps in all those other nations and higher prices may remain, by sacrificing some capitalist profits, this may be one aspect how China will reduce its carbon emissions…….

Have a think about that notion?

In addition, after decades of the global juxtaposition of China exporting deflation (and many enjoying lower prices), China may be now “exporting” inflation. 

It may be the definition of being ‘careful what you wish for’.

With its own currency testing multi-year highs (helping put a lid on its own inflation rate), could China’s new export to the world actually become Stagflation?






Don’t forget to subscribe to my blog to receive other notes, the moment they are published or equally feel free to email with a question or comment.



Until next time,

Warm Regards,
Rob Zdravevski
rob@karriasset.com.au

Shipping costs are adding to inflation

The Baltic Dry (shipping) Index has risen 10x over the past 15 months.

So the decision for businesses is that the cost of shipping is passed on into the finished product pricing or the bulk product isn’t transported (due to an aversion to higher shipping costs), resulting in scarcity.

Either way, prices rise…..and yet I’m told there isn’t any inflation.

August 22, 2021
by Rob Zdravevski
rob@karriasset.com.au

The FED can’t manufacture inflation

Let’s get one thing straight….
The Federal Reserve is hopeless at trying to produce inflation.

It’s had bandied about some fantastical 2% inflation target for years. M2 Money Supply has risen by $6 trillion in 5 years, with half of that occurring in the past 3 months (and more to come) and still isn’t any sign of inflation.

It’s advisable to read up on Debt Deflation. That seems a more probable outcome.

Having said that, inflation could well rear its head as a result of something such an oil shock. Incidentally, the energy complex has a significant weighting when calculating inflation.

I don’t say this because I’ve recently re-read the events of 1970’s but there is some merit of that occurring within the current landscape.

But the Federal Reserve won’t be the ones who “create” inflation.

June 17, 2020
by Rob Zdravevski

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