Inflation pressure is getting worse around the world and is pressuring household budgets as costs are rising much faster than wage rates. The squeeze is coming from food, energy and shelter cost increases. Protests against rising prices and the inability to feed ones’ family is disrupting many third world countries particularly. There are already violent protests in Athens, Sri Lanka and Peru and this may be the tip of the iceberg. The World Bank and the IMF are working to prevent debt and food shortage crises in El Salvador, Ethiopia, Pakistan, Sri Lanka and Tunisia. There is growing concern that over 1B people may face food shortages this year.
The sharp 11.2% rise in the US March PPI was a shock to US investors and interest rates took off. The Two-year US Treasury yield has rocketed upward from 1.3% in early March to 2.72% last week and is up 20x from the lows around 0.13% a year ago (Chart #6). This is the sharpest percent increase in such as short time ever. Yes, the rate is still low in absolute terms but the increase can be painful for mortgage renewals etc. The Five-year US Treasury rate is now at 2.94% and is above the 10-year rate which is at 2.90%, causing an inversion in the rate structure which has always preceded recessions.
In some countries the inflation data is a remembrance of the runaway inflation of Zimbabwe, Venezuela, Argentina and Turkey which destabilized the countries and led to even more autocratic regimes.
In Portugal, the PPI year over year rose to 26.3% in March (Chart #7). This is higher than the rate in 2008 before the financial crisis. After that unfolded the rate plunged to nearly a negative 20%.
In Denmark, the PPI year over year for March rose a whopping 35.1% (Chart #8). This again was much higher than the inflation rate in 2008 (and a faster rise in such a short time period) before the world went into the financial tailspin. Note how quickly the financial crisis lowered the rate to a negative 16%.
Germany is facing a substantial fall off in business activity (Chart #9). From a high of 83 in mid-2021 the last two months have seen a waterfall decline from 55 to minus 41. It is nearing the low during the worst of the pandemic. If Germany agrees to cut off supplies of Russian crude then the economy will decline into a much worse position than during the pandemic lockdowns.