Inflation is surviving after increasing interest rates, Asian business leaders warn

September 28, 2022: -Inflation in consumer goods persisting as a “new normal” as the global economy undergoes structural changes, Asian business leaders warn.

While increasing interest rates might eventually temper asset prices, deglobalization and decarbonization could support going to drive up costs for everyday goods, said V. Shankar, chief executive of emerging markets investment manager Gateway Partners.

“Inflation is here to remain come perdition or high water, irrespective of what the central banks do because there are a few structural, intractable problems that have led to higher prices,” Shankar said at the Forbes Global CEO Conference in Singapore.

“Despite helicopter money and zero interest rates, the price of goods stayed down for so long because of a vast, reasonable manufacturing agent called China, and the integration of global supply chains.”

That integration is paving the way for cheaper goods. But catalyzed by the pandemic, there are new threats to intertwined global supply chains as countries bringing back manufacturing to their own countries or countries they are friendly with, Shankar added.

In July, U.S. Treasury Secretary Janet Yellen touted the need to increase supply chain resilience through “friend-shoring” by doing business with countries that share values with Washington.

Shankar added that this collapses globalization and increases prices as manufacturing will no longer be based on numbers and cost considerations.

Decarbonization efforts will contribute to higher prices, Shankar said, as there is not enough supply of components for climate-friendly goods to meet demand.

For example, the global production and consumption of graphite for electric vehicle batteries were 1 million tonnes in the previous year, but in 10 years, that could increase to 5 million tonnes. There is no sign where that extra production comes from, Shankar said. 

“If you look at the fossil fuel industry, they invest as if we are transitioning to a net-zero economy by 2035, as the renewable industry which invests at a speed of roughly a third of what is required for net-zero by 2050,” he further said.

“There is an inevitable train wreck, and the politics and societal pressures collide with economics. So, inflation is here to stay.”