Inflation in consumer goods will persist as a "new normal" as the global economy undergoes structural changes, Asian business leaders warn.
While rising interest rates might eventually temper asset prices, deglobalization and decarbonization could continue to drive up costs for everyday goods, said V. Shankar, chief executive of emerging markets investment manager Gateway Partners.
"Inflation is here to stay come hell or high water, irrespective of what the central banks do because there are some structural, intractable problems that have led to higher prices," Shankar said Monday at the Forbes Global CEO Conference in Singapore.
"Despite helicopter money and zero interest rates, the reason why the price of goods stayed down for so long is because of a vast efficient manufacturing agent called China, and the integration of global supply chains."
That integration paved the way for cheaper goods. But now, catalyzed by the pandemic, there are new threats to interwoven global supply chains as countries look to bring back manufacturing to their own countries or to countries they are friendly with, Shankar said.
In July, U.S. Treasury Secretary Janet Yellen touted the need to boost supply chain resilience through "friend-shoring" — doing business with countries that share values with Washington.
This collapses globalization and increases prices as manufacturing will no longer be based on numbers and cost considerations, Shankar added.
There is an inevitable train wreck and the politics and societal pressures are colliding with economics so inflation is here to stay.V. ShankarCEO, Gateway Partners
Decarbonization efforts will also contribute to higher prices, Shankar said, as there is not enough supply of components for climate-friendly goods to meet demand.
For instance, the global production and consumption of graphite for electric vehicle batteries was 1 million tonnes last year but in 10 years, that could rise to 5 million tonnes. There is no indication where that extra production will come from, Shankar says.
"If you look at the fossil fuel industry, they are investing at a pace as if we are transitioning to a net-zero economy by 2035 whereas the renewable industry is investing at a pace of roughly a third of what is required for net-zero by 2050," he said.
"There is an inevitable train wreck and the politics and societal pressures are colliding with economics. So, inflation is here to stay."
Ho Kwon Ping, executive chairman of Singapore's multinational hospitality group Banyan Tree Holdings agreed, saying higher interest rates are not the new normal, rather, zero or low interest rates were "abnormal."
"I think a real abnormal situation was the period we went through where central banks and others perhaps now, in retrospect, reacted too strongly and we had too long a period of zero or even negative interest rates," Ho said.
"The world is going, in my view, back to probably a long-term situation of low interest rates, and hopefully, low inflation, but zero inflation, zero interest rates, that's the abnormality, and not the future that we're looking at."
U.S.-China tensions
Whether it is deglobalization or decarbonization, underscoring these concerns is the growing rivalry between the U.S. and China, the potential splintering of global trade and business into two blocs, and having to take sides.
Ho said many business leaders in Asia-Pacific and other parts of the world have had to start "scenario planning" to mitigate potential sanctions on China.
Even China itself is preparing to be self-sufficient in key areas such as securing enough energy, food and critical goods supplies, Ho adds.
"What I think is really strange is this very aggressive, decoupling between China and the rest of the world, from each other," Ho said.
"For those of us who have operations in over 20 countries, I'm just having a hard time trying to figure out where I'm going to be getting pressure from — in order not to do business with certain countries or to do business with certain companies. And to be caught in this situation. I think it's very uncomfortable."
The world's business leaders may have to abandon "the luxury of thinking" that the U.S. and China will get back together, Ho said.
Chairul Tanjung, chairman of CT Corp, one of Indonesia's largest conglomerates, urged countries to consider a new framework of working better together.
"Now, everybody, every country strives to solve their own problem, trying to 'win' the situation," Tanjung said.
He added that a crucial way to move forward is to focus on critical global issues such as climate change.
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September 27, 2022 at 01:37PM
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Inflation is here to stay despite rising interest rates, Asian business leaders warn - CNBC
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