A woman shopping at a Garcia’s supermarket in Quezon City, Philippines, on September 9. May 5, 2022.
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Asian business leaders have warned that consumer inflation will persist as the “new normal” as the global economy undergoes structural changes.
While rising interest rates may ultimately lower asset prices, deglobalization and decarbonization may continue to push up the cost of everyday items, said V. Shankar, chief executive of emerging markets investment management firm Gateway Partners.
“No matter what central banks do, inflation is going to stay in hell or high water because there are some structural, thorny issues that are driving prices up,” Shankar told the Forbes Global CEO Conference in Singapore on Monday.
“Despite helicopter money and zero interest rates, commodity prices have remained low for a long time because of a fast and efficient manufacturing agency called China, and the integration of global supply chains.”
This consolidation paves the way for cheaper goods. But now, fueled by the pandemic, intertwined global supply chains face new threats as countries look to bring manufacturing back to their home countries or countries that are friendly to them, Shankar said.
In July, U.S. Treasury Secretary Janet Yellen touted the need for “friend support” to improve supply chain resilience — doing business with countries that share Washington’s values.
Shankar added that this undermines globalisation and increases prices as manufacturing will no longer be based on volume and cost considerations.
Decarbonization efforts will also lead to higher prices, Shankar said, as parts and components for climate-friendly goods are in short supply to meet demand.
For example, global production and consumption of graphite for electric vehicle batteries was 1 million tons last year, but in 10 years, it may rise to 5 million tons. Shankar said there was no indication of where the additional production would come from.
“If you look at the fossil fuel industry, they’re investing at a rate as if we’re going to transition to a net zero economy by 2035, and the renewable energy industry is investing at about a third of the rate that a net zero economy would need by 2050, “He says.
“Inevitable train wrecks, political and social pressures are colliding with the economy. As a result, inflation will persist.”
Ho Kwon Ping, executive chairman of Singapore-based multinational hotel group Banyan Tree Holdings, agreed, saying high interest rates are not the new normal, and instead zero or low interest rates are “abnormal”.
“I think what’s really abnormal is the period we went through, where central banks and other institutions are now overreacting in retrospect, with zero or even negative interest rates for too long,” Ho said.
“It seems to me that the world could go back to a long-term state of low interest rates, hoping for low inflation, but zero inflation, zero interest rates, which is not normal, and not the future we’re looking for.”
Underscoring these concerns, whether deglobalization or decarbonization, is the growing competition between the United States and China, with global trade and commerce potentially splitting into two blocs and having to choose sides.
Ho said many business leaders in the Asia-Pacific and other parts of the world had to start “scenario planning” to ease potential sanctions against China.
Ho added that even China itself is gearing up to become self-sufficient in key areas, such as ensuring adequate supplies of energy, food and key commodities.
“I think what’s really strange is this very aggressive decoupling between China and the rest of the world,” Ho said.
“For those of us who do business in 20+ countries, I just have a hard time figuring out where I’m going to get pressure — to not do business with certain countries or with certain companies. And getting stuck in this situation. I think it’s very uncomfortable.”
World business leaders may have to abandon the “luxurious idea” that the US and China will come back together, Ho said.
Chairul Tanjung, chairman of CT Corp, one of Indonesia’s largest conglomerates, urged countries to consider a new framework for better cooperation.
“Right now, everyone, every country is trying to solve their own problems, trying to ‘win’ the situation,” Tanjung said.
A key way forward, he added, is to focus on key global issues such as climate change.