The world is humming along just find, isn’t it? The Paris-based OECD says the global economy is growing faster than it expected in a generally cheerful, semi-annual state-of-the-global economy report. But then, it’s hard not to be cheerful when you’re writing from Paris in May. It’s a beautiful time of the year. You tend to look at everything, even rising prices, more indulgently.
Even the wonks and pocket-protected geeks at the OECD admit that the explosion in global money supply is ominous. It should not be a surprise to anybody that prices are rising. After all, money supply is rising. And that’s what inflation comes from, an increase in the money supply.
The OECD says, “many signs of strong underlying global inflation pressures which could yet feed through into headline inflation; reflecting past increases in commodity prices, the inflation rate for intermediate industrial goods in most OECD countries has picked up and in many is running at its highest level since the beginning of the decade; shipping costs have surged over the past year; and the price of food relative to other consumer prices has risen across most OECD countries.”
This is the downside of the melt-up in stock prices. An increase in global money supply heats everything up. At first, rising assets are like warm sun on bare skin in the early morning. It’s quite comfortable, and it makes you look and feel better.
But along with your rising asset prices, you have risings prices for everything else. We haven’t really seen this yet, the point where too much money causes people to get burned, the same way too much sun leaves your skin itchy, dry, and flaming red. Investors are going to need a good exfoliating cream.
Cheap credit married with cheap energy and increased global production of manufactured goods has kept consumer price inflation low all over the world for twenty years. But slowly, like chunks of an ice-shelf falling into the sea, we are seeing the fact of higher energy costs make its way into higher prices for just about everything.
First it’s the fuel we burn in our cars. Next is the fuel we burn in our bodies, food. After that, who knows? All dem bones in the economy are connected via energy. Pretty soon you have a bush fire in your body. And what looked like a nice cozy asset melt up becomes the next great global hyperinflation. More on that next week…
Markets and Money