It's not just the supply chain 'bottlenecks'

Inflation is still a problem created by central banks, and politicians

Currently, the “transitory inflation” narrative is slowly dying. Central banks of developing nations are rising interest rates and ever-smaller share of financial market analysts trust on the narrative, which central bankers have pushed, desperately, for the past few months.

Now, it’s as good as “done”. For example, the 5 to 10 -year breakeven inflation rates are near record-highs in the U.S..

The world is ‘drowning’ in money

Like I’ve been detailing, the inflation is here to stay (see also this) and it has pushed the Fed and the ECB into a corner, of their own making.

In one of my first posts, I explained how the asset purchase programs, or QE, were pushing massive amounts of (artificial) central bank liquidity into the financial markets creating all kinds of bubbles and price distortions. The fact is that, if central bankers would never had run the QE-programs beyond maybe the first QE of the Fed (which ended in June 2010), we most likely would not be in this mess.

Another fact, related to the one above, is that we cannot simply blame the bottlenecks in global supply chains for this. There’s a massive amount of money ‘sloshing’ around in the global economy, due to QE -programs, and it’s looking for products (and services) to buy. Without it, and the lockdowns, there would not be such a large demand for goods.

Freight issues are not easing

The Global Container Freight index, by Statista, shows clearly that price pressures in freight are not easing. Also, on Wednesday, there was a record number of container ships, 103, waiting in the Los Angeles/Long Beach terminals or offshore.

How did we end up here?

When economies were in lockdown and governments were issuing ‘stimulus checks’ and subsidies to households, demand from services got re-directed into goods, more precisely to “stuff from China”. This jammed up the global freight and when economies opened up, demand from corporations to all kinds of intermdiate products, added to the pressure.

Then add labor and lorry-driver shortages (caused by lockdowns), the ‘chickens’ of failed energy policies ‘coming home to roost’ and massive influx of newly created money from the central banks, and you get a build up of heavy and persistent inflation pressures. Now, there are also growing wage pressures. For example, the largest labor unions in Germany are demanding 5.5% wage rises. These will notably increase the inflation pressures in the main industrial hub of Eurozone, and they will spread.

Alas, with the central bankers in the U.S. and in the Eurozone dragging their feet, we may be heading into an actual inflation crisis. And, then there will no saviours left for the financial markets, which are like to crumble under fast increasing interest rates.

Central bankers have dug their own grave.