A global problem

Delivered on By Justin Pyvis

Good morning! The latest People’s Voice Poll conducted by Painted Dog Research found that “Mr 91%” is now “Mr 64%”, with WA Premier Mark McGowan losing the support of 27% of the population since peaking in popularity back in September 2020.

Rapidly declining public support for the state’s infamous hard border (McGowan’s satisfaction rate was still a lofty 77% in December 2021) can only mean one thing: the Hermit State will reopen soon.

Reading the tea leaves

Daily % change







AU Bond



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Brent (bbl)



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Note: Brent oil, gold bullion and iron ore prices are the second futures contract. Bond yields are 10-year Treasuries. The S&P500 is a snapshot 30 minutes before close.

At the time of writing the US S&P500 was slightly positive (+0.20%), paring early losses after the US Federal Reserve minutes “urged a measured approach to tightening monetary policy”, and didn’t even mention the possibility of a 50 basis point rate hike.

Locally, the ASX200 followed the US lead and gained +1.08% on positive Russia/Ukraine talks, with the only sectors to lose ground being energy (-0.74%) and materials (-0.36%) due to further falls in oil and iron ore prices after the session ended the day before.

A notable mover was healthcare giant CSL, which added 8.5% and contributed nearly half of the ASX200’s total gains for the day after it “beat half-year earnings estimates and said it expected its blood plasma collection business to return to pre-pandemic levels.”

Food for thought

For the first time in over 20 years, inflation is again a global problem.
For the first time in over 20 years, inflation is again a global problem. Source

Late last Friday the Chief Economist of the World Bank, Carmen Reinhart, published an article very subtly titled The Return of Global Inflation:

“In 15 of the 34 countries classified as AEs [advanced economies] by the International Monetary Fund’s World Economic Outlook, 12-month inflation through December 2021 was running above 5%.

Nor is this inflationary surge limited to wealthy countries. Emerging markets and developing economies [EMDEs] have been hit by a similar wave, with 78 out of 109 EMDEs also confronting annual inflation rates above 5%. That share of EMDEs (71%) is about twice as large as it was at the end of 2020. Inflation thus has become a global problem – or nearly so, with Asia so far immune.”

Reinhart and co-author Clemens Graf von Luckner go on to point out that while in many AEs an oft-cited cause for inflation is “overheating”, many EMDEs enacted relatively little stimulus and have not experienced the rapid economic recovery seen in AEs.

EMDEs are also far more exposed to global food and commodity prices, regardless of what’s happening in their domestic economies:

“During 2021, 12-month increases in food prices exceeded 5% in 79% (86 out of 109) of EMDEs. While AEs have not been immune to rising food prices, just 27% of them experienced price hikes exceeding 5%.

Worse, food price inflation also generally hits lower-income countries (and lower-income households everywhere) particularly hard, which makes it tantamount to a regressive tax… Today’s higher energy prices will translate directly into higher food prices tomorrow (through higher costs for fertilizer, transport, and so forth).”

While the EMDEs affected by rising import prices could theoretically offset rising prices through monetary policy and a stronger currency, in reality “the scope for ‘truly independent’ monetary policy in small open economies remains limited”, meaning “the task of addressing inflation is left to the major central banks”.

The authors aren’t optimistic that the US Federal Reserve will be up to the task:

“While the US is poised to undergo a modest tightening (by historical standards) in 2022, this is unlikely to be sufficient to rein in price growth. As Kenneth Rogoff and I document in a 2013 paper, much of the inflation persistence of the 1970s stemmed from the US Federal Reserve’s tendency to do too little, too late (until Paul Volcker’s arrival).”

Tighter monetary policy enacted by the world’s major central banks would cause short-run pain across the world, but as we saw in the 1970s, “the longer-term costs of delaying action would be greater.”

Bits and bytes

🤓 Australia’s Treasury Secretary and RBA board member Steven Kennedy conceded his model is wrong: “We probably underestimated the extent to which we could draw people into work, and not put any pressure on wages.” What will he say when his model really breaks from reality and inflation starts rising a lot faster than wages..?

🛂 Deakin University epidemiologist Catherine Bennett said that “given the small number in the population who either haven’t been infected or vaccinated, there is little to be gained from having vaccine mandates in place”.

🚂 The Trans-Australian Railway between Adelaide and Perth reopened after flood damage took it offline for more than three weeks, although WA’s supermarket shelves will likely take another 4-6 weeks to recover “as a result of trying to clear the backlog from over east”.

🏨 Queensland’s government has permanently ended hotel quarantine now that a dedicated facility at Wellcamp has been completed.

📈 Australian gold miner Evolution Mining warned that its labour costs – which comprise 52% of its cost base – will rise 4-5% in the next financial year.

🔥 UK inflation grew at the fastest rate in 30 years in January, rising 5.5%. The price increases were broad-based with core inflation, which strips out energy, food, alcohol and tobacco prices, rising 4.4%.

🍁 Canada’s inflation rate hit 5.1% in January, the fastest consumer price increases since 1991. Core inflation was 4.3%, the highest since 1999.

🍺 Heineken’s CEO said: “In my 24 years in the business I’ve never seen anything like it, not even close… There’s no model that can handle this kind of inflation. It’s kind of off the charts.”

🌽 Heavily subsidised corn-based ethanol produced in the US, mixed into gasoline to make it ‘greener’, “is likely a much bigger contributor to global warming than straight gasoline”.

💰 Elon Musk donated $US5.7 billion worth of Tesla shares to charity in November 2021, just days after the director of the UN’s World Food Programme said 2% of Musk’s wealth – or roughly $US6 billion – “could solve world hunger”.

👷‍♀️ South Korea’s economy added jobs for an 11th consecutive month in January, recording its largest job growth since March 2000. The unemployment rate now stands at 4.1%.

🐷 Consumer prices in China increased just +0.9% in January, pulled down by plunging food prices (-3.8%), with pork alone knocking -0.96 percentage points off the headline figure. However, producer prices – what factories charge wholesalers – were still red hot at +9.1%, due to “cooling prices of both coal and steel”.

👶 A new study by the US Centres for Disease Control and Prevention found that “Babies younger than 6 months old were 61% less likely to be hospitalised with Covid if their mothers received Pfizer or Moderna’s two-dose vaccine during pregnancy.”

🍯 Hong Kong’s President in all but name Xi Jinping told the city’s government that it should “mobilise all possible forces and resources” to combat the current Omicron outbreak.

🙉 What a time to be alive. “Baby Shark”, a song so annoying it was used by police in New Zealand to dispel anti-vaccine mandate protesters, is getting a full-length film in 2023.

🦈 A swimmer died at Little Bay Beach in Sydney after being attacked by a shark. It was the first fatal shark attack in Sydney since 1963.