Just look at the price of tomatoes in February here in Helsinki – €8 to €15 a kilo just now when they were €4 to €5 a kilo a year ago. The cost of heating a greenhouse has not doubled… It looks more like that there is a lack of competition, or is something else going on?
Fuel prices have increased from €1.6 to €1.9 that is only 19% – it was €1.8 in 2010. The price moves up and down with the value of the dollar or when wars cause shortages… but there is no shortage of oil… plenty is waiting in the ground ready for polluting our only living place – and in any case it will fall again as more people move over to EVs.
In general prices have increased because of labour shortages, depleted water and energy resources in China. The manufactured products we need for cars, industrial plant, computers, phones and solar panels are in short supply, and the situation with containers, ships and ports is also a mess meaning that supply chains are horribly messed up…. But they will sort themselves out in the next few months.
Interest rates are up a little but they are still far too low. France, Italy and Spain as well as private equity investors love low rates and lobby hard to keep them low. But this has resulted in diverting money into activities that do not result in productivity gains.
These low rates have forced up prices. The experience with these low interest rates means that far too little money goes into investments, innovation and growth companies. Huge share buybacks and investments focused on popular companies like Tesla, tech companies and many others do little to improve our lot.
We are told that investments are need to fight climate change but what really happens? Your correspondent was recently asked if he would invest his pension savings into an African oil company, along with a group of other investment professionals. We all said no, but our biggest pension funds are all involved in private equity funds that are buying huge chunks of fossil fuel companies that banks and oil companies are selling off cheaply… They fund themselves with low cost debt, and guess what, many of our pension funds have invested with these same private equity funds! Investments by big oil is made in share buybacks not into renewables…
Zero interest rates make it easy to invest, especially when people are desperate for high returns. Zero interest rates forced on us by foolish central banks has create huge casinos which have destroyed healthy investment activities. We will be paying the cost for many years to come, and this will stymie growth too! The Fed is already increasing interest rates, but the EBC is hesitating. What do you expect from a former French politician who has a history of major disasters. We will see higher interest rates, but the increase will be in a few small steps without major moves. Housing loans will not see big cost increases over the next two or three years. Just watch out for banks offered interest rate caps. These are the most overpriced options they have been peddling by creating fear in the hearts of home buyers!
In summary, inflation is gruesome at the moment and if Putin behaves then we can expect the price of food and energy to fall. We will see less growth and there will be less noise from China. They had their expensive Olympics, and Xi will be paying for that foolishness for several years to come. In the US Mr. Biden will manage better than Trump, who will also fade away as people get tired of his hopeless and empty rhetoric…
In Europe we have stability and reason to expect steady growth and perhaps less Covid…
Keep your hat on and pray that Putin does not go to war, because if he does then the bets are off as the USA will want to start playing with their latest weapons while EU will start scratching their heads about why they trusted Mr. Putin so much. It could get a little messy before the dust settles.
Keep watching the price of tomatoes…
