Tag Archives: inflation

Business/Economics, International

What Economic Recovery? Japan to fight inflation with butter, lots and lots of butter, it’s not funny

Inflation is hitting other countries harder than the United States (so far).  In Japan inflation has caused the price of butter to go up so high, that the government announced they will flood the butter markets with more butter.

But that butter isn’t coming from Japan.  Butter production collapsed after the March 11 disasters, so the Japanese government will import 2,000 tons of butter.

It’s not just butter that will be imported, but fish as well.  This is no thanks to the radiation being poured into the Pacific Ocean off the Japanese coast.  Japanese fishermen are having a hard time selling their catch, even if it’s certified to be free of radiation.  The result is a fish shortage, and of course the price is going up.  Japan will import 13,700 tons of fish.

The situation in Japan will only strain the growing world food crisis.

Business/Economics, International, U.S.

What Economic Recovery, What Global Warming? It’s summer time and Crops in Mexico are being threatened by Frost, yet more reasons why food prices will go up

“The involvement is significant, because they are threatening more than 7 million hectares of crops planted in the spring-summer 2011, which are at risk for losing a harvest of 20 million tons of basic grains as well as lost income and liquidity of more 3.5 million basic grain producers.”-Salazar Arriaga, National Confederation of Corn Producers

To be sure Mexico’s agriculture industry is dealing with severe drought, but also flooding and…frost.

23 of Mexico’s 32 states are dealing with drought, but, now that the rainy season is about to start it looks like they’ll get hit with severe flooding, neither of which are conducive to growing crops.

In northern Mexico, winter is predicted to come on colder than normal, resulting in frost damage to many struggling crops.

Some of the worst hit states in Mexico are Coahuila, Nuevo Leon, Durango, Sonora, Chihuahua, Hidalgo, San Luis Potosí, Colima, Chiapas, Campeche, Yucatán and Zacatecas.  Farmers in those states have lost too much of the growing year, which means it’s too late to plant anything.

Business/Economics, International

What Economic Recovery? China bans local businesses from getting loans from foreign banks

In a move that’s officially meant to tighten money supply, to counter rising inflation, China has banned all domestic businesses from taking loans from foreign banks.

The specific type of loan is called RMB (RenMinBi, a type of international currency). The People’s Bank of China, told all other banks that it would stop accepting applications for direct offshore borrowing.

An unnamed source said one of the reasons China is banning RMB loans, is because they have no control over the interest rates of those loans.

China has already tightened lending by Chinese banks, again, to try and control inflation by restricting the amount of money in the consumer market.  The RMB loans are controlled by foreign banks, and have increased their lending in China since the beginning of the year.

An official with the People’s Bank of China said they are going to come up with a system in which they can influence the lending of foreign money in China.

 

Business/Economics, International, U.S.

What Economic Recovery? China blames the United States for creating runaway inflation, the dollar will continue to lose value despite debt limit deal, China looking for other currencies to do business with

“If the unemployment rate continues to rise, it will further damage investor confidence and force them to move away from U.S. Treasury securities, leaving the U.S. government no choice but to print money and depreciate its currency.”-Lu Zhengwei, Industrial Bank Co Ltd

Chinese officials say the U.S. Debt Limit Deal is not enough, mainly because it will not stop job loses, and it doesn’t cut enough government spending.

Zhu Baoliang, chief economist at the State Information Center, says U.S. government debt is too large to be resolved through normal measures such as tax increases and deficit reductions.  Also, it is highly unlikely the U.S. government will significantly reduce entitlements like Social Security and Medicare, or significantly draw down troops overseas.  All that means is at the very least the U.S. dollar will continue to lose value.

The Chinese are blaming their runaway inflation on the falling U.S. dollar.  In June inflation hit 6.4% in China.  The increase in costs is causing a drop in factory orders, which hits China where it hurts.

Chen Kexin, chief analyst at the Distribution Productivity Promotion Center of China Commerce, says no matter what happens now, inflation will pick up speed.  He predicts oil prices will go back up to more than $100.00 per barrel, and copper could hit $10,000 per ton.

According to the U.S. Department of the Treasury, China is the largest foreign holder of U.S. government debt (the overall largest holder of U.S. debt is…the U.S. taxpayer via the U.S. Treasury).  Many analysts in the United States think China has no choice but to keep buying U.S. debt, creating a false sense of security among U.S. leaders.  But one analysts admits China is cutting back: “Beijing is probably not buying Treasuries as intensely as it did last year.”-Derek Scissors, The Heritage Foundation

Chinese analysts are pushing for their government to diversify their U.S. debt holdings, because the debt limit deal won’t help: “The debt crisis may have a negative impact on the fiscal spending of the U.S. government, which may drag down the U.S. economy for the rest of the year.”-Hou Zhenhai, Investment bank China International Capital Corp

It’s not just U.S. government bonds China has, but something called foreign exchange reserves.  These bonds can come from corporations, like Fannie Mae and Freddie Mac.  The problem for China is most of its foreign exchange reserves are in U.S. dollars.  Chinese analysts are warning of the “all your eggs in one basket” scenario; they think China will be dragged down when the United States finally sinks.

In fact, one analysts thinks the situation is so bad that China should stop investing into all foreign operations: “Because of the lack of mature overseas investment projects, the scale of China’s overseas investment is not big enough to absorb massive foreign exchange reserves in the short term. Therefore, to invest overseas is not realistic.”-Zhang Yi, Institute of Foreign Economy, the National Development and Reform Commission

 

Business/Economics, International

What Economic Recovery? China economic data down for 4th straight month, inflation to blame, again

August 1, the China Federation of Logistics and Purchasing says purchases of manufactured products is down for the 4th month in a row.

The main reason is the continuing inflation in prices of basic resources, which is causing prices for manufactured goods to go up.   Despite efforts by the Chinese government to control inflation, the inflation rate is exceeding their expectations.

Currently the purchase of manufactured goods (PMI) is stagnating at 50.7.  Anything below 50 is bad.  In previous years China’s PMI was well above 50, but this year it’s been falling.


Business/Economics, U.S.

What Economic Recovery? Inflation eats into profits for Ford & Chrysler

Both Ford and Chrysler are reporting increased sales revenues, but both are reporting decreases in profits.  The culprit, inflation.

Inflation is driving up the cost of materials used to build their cars, and even with retail price increases the result is lower profits.

Now Ford is preparing to deal with Union contract negotiations in the United States.  Obviously workers are going to want more money, because inflation is driving up their cost of living.

Business/Economics, International

What Economic Recovery? Chinese Housing Bubble about to explode: Property Loans halted

“You’d better prepare to pay 40% of your home price as down payment, because commercial banks are going to ask more for a property loan.”-Gong Hang, bank official

First the Chinese government created a new income tax schedule that meant more people were excused from paying taxes, but left them potentially unable to buy a home (due to not having the required tax documents).  Then they ordered down payments to be increased, or mortgage interest rates must be increased (some banks did both).  Now, banks are just flat refusing to issue anymore property loans.

In what’s called 2nd and 3rd tier cities, in China, banks are refusing to issue anymore loans for property: “We will not accept property loan applications at present, even if it is from a first-time home buyer.”-unnamed bank official

If you think paying 40% down on a home is outrageous, wait ’till you read this: 40% down is for first time home buyers, if you’re buying a home for the second time Chinese banks now want 50-60% down.

Bank officials say it’s because the Chinese government ordered banks to hold onto their money, by not lending it out.  This is an attempt to control inflation, which Chinese officials are fearing could get out of control.

 

Business/Economics, International

What Economic Recovery? China to raise interest rates, requires banks to hold more money in reserve

The Chinese government is contemplating another increase for interest rates, in an attempt to fight off inflation.

On top of that, the Chinese government has ordered banks to tighten their hold on cash.  Currently Chinese banks are required to hold back 21.5% of their cash. The increase in capital reserves, as it’s sometimes called, is intended to slowdown lending.  Lending is another way to drive up inflation.

However, the Bank of China issued a report that says increasing interest rates, and forcing banks to cut back on lending by increasing their capital reserves, is not having any immediate affect on inflation.  That’s because Chinese banks went on a huge lending spree, which flooded the economy with so much money that it will take some time before inflation is brought under control.

In a previous report, it was estimated by a Chinese government audit, that local governments (just local governments) are now in debt by $1.65 trillion.

 

Business/Economics, International

What Economic Recovery? Inflation hits makeup, Cosmetics prices to go up, up

Estee Lauder Group announced they will be raising prices on their various makeup brands by 8% to 10%.

Corporate officials are blaming the price rise on the increased cost of labor, and resources.

Estee Lauder Group is not the first cosmetics company to raise their prices.  Earlier in the year Christian Dior, Lancome, Biotherm, Chanel and others announced prices increases.

Business/Economics, U.S.

Coca Cola raises prices, blames inflation, bad weather, Pepsi and others to follow suit

Coca Cola will raise prices at least 3 to 5% in July.  They raised prices 2% earlier this year.

They blame the rising costs of resources, due to speculators playing the commodities markets. They also blame the cost of transportation due to high fuel prices.

In China, Coca Cola bottlers will use smaller bottles.  Hangzhou bottler already changed its 600 milliliter packages to 500 milliliters in May, but charges the same price.

Industry analysts say the inflation in commodity prices has to be passed on to consumers sooner or later.  A month before Coca Cola’s price rise announcement, Smuckers raised prices on its coffee products.  Eventually consumers will see more price rises across the food market.

A big factor for commodity price increases is the bad weather most of the United States is experiencing.  Cooler, wetter than normal weather in the north west.  Massive flooding in the plain states, and mid west.  Hotter weather in the east.  All these weather extremes are resulting in less crop production.  Less crops on the markets will drive the price up.