Inflation is here to stay, Asian business leaders warn

Asian business leaders have warned that inflation in consumer goods will continue as the “new normal” as the global economy undergoes structural changes.

While rising interest rates may eventually upset asset prices, deglobalization and decarbonization are likely to continue to drive up costs of everyday goods, said emerging markets investment manager Gateway Partners CEO V. Shankar said.

“Inflation is here, come hell or high water, regardless of what central banks do, because there are some structural, intractable problems that lead to higher prices,” Shankar said at the Forbes Global CEO Conference in Singapore.

“Despite helicopter money and zero interest rates, the long-term stability of commodity prices is due to China’s highly efficient manufacturing agent and global supply chain integration.”

That integration paved the way for cheaper goods. But now, amid the pandemic, there are new threats to interconnected global supply chains as countries look to bring manufacturing home or to friendly countries, Shankar said.

In July, US Treasury Secretary Janet Yellen spoke of the need to build supply chain resilience through “buddy-shoring” – doing business with countries that share values ​​with Washington.

This globalization will collapse and will drive up costs as manufacturing will no longer be based on quantity and cost estimation, added Shankar.

Decarbonization efforts also contribute to higher prices, Shankar said, as there is insufficient supply of climate-friendly commodities to meet demand.

For example, the global production and consumption of graphite for electric vehicle batteries was 1 million tons last year, but in 10 years this may increase to 5 million tons. No clue where that extra production will come from, says Shankar.

“If we look at the fossil fuel industry, they are investing at a rate that looks like we will move to a net-zero economy by 2035, while the renewables industry is investing at one-third the rate needed for net-zero by 2050,” he said.

“There is an inevitable train wreck and the politics and societal pressures collide with the economics. So inflation is here to stay.”

Ho Kwon Ping, executive chairman of Singapore’s multinational hospitality group Banyan Tree Holdings, agreed that high interest rates are not the new normal, rather zero or low interest rates are the “abnormal”.

“I think the real anomaly is that central banks and others, perhaps now, have reacted strongly in retrospect and we’ve had a very long period of zero or even negative interest rates.

“The world, in my view, is returning to a long-term state of low interest rates, and hopefully, low inflation, but zero inflation, zero interest rates, that’s unusual, and it’s not the future we want.”

Whether it is deglobalization or carbonization, underscoring these concerns is the growing rivalry between the United States and China, the division of global trade and commerce into two blocs, and the need to step aside.

Ho said many business leaders in the Asia-Pacific and other parts of the world had to start “contingency planning” to deal with potential sanctions against China.

Even China itself is preparing to become self-sufficient in key sectors such as sufficient energy, food and critical commodity supplies, Ho added.

“What I think is really this is a very aggressive, intertwining between China and the rest of the world,” Ho said.

“For those of us who have operations in more than 20 countries, I’m trying to figure out where to not do business with certain countries or to do business with certain companies. And to be caught in this situation. I think it’s very uncomfortable.”

World trade leaders may have to give up the “luxury of thinking” that the United States and China will bounce back, Ho said.

Chairul Tanjung, chairman of Citicorp, one of Indonesia’s largest companies, urged countries to consider a new framework to work better together.

“Now everyone, every country tries to solve its own problems, tries to ‘win’ the situation,” Tanjung said.

He added that the key way forward is to focus on critical global issues such as climate change.