Inflation is like the zombie apocalypse. No one really knows where it came from. But government is obviously at fault since they did not prevent it and are helpless to stop it. The public does not have many options.
You can respond like Hershel Greene, the farm owner in The Walking Dead. Strengthen your fences, grow your own food, and hope and pray the world goes back to normal one day. Maybe the other choice is found in the movie Zombieland. Kill as many zombies as possible while looking for a safe place. And follow the rules.
The reality is that inflation is more like the zombies in the Netflix series Z Nation. There are Zombie Animals, superfast moving Blasters, the zombie-plant hybrid Phytos, the super-strong Mad Zs, the intelligent Franken Zs, and the Talkers that are undead but function like normal humans.
Likewise, there are various types of inflation, each with a different cause and with different consequences. In Z Nation there is also the Radioactive Zombies that occur in only one place—the Edgemont Nuclear Power Plant—that is sort of like a currency-induced hyperinflation of Venezuela and Zimbabwe.
But unless you can do a “Hershel Greene” you cannot escape inflation. Regardless of the underlying cause, price increases will touch everything you use and buy. Thinking that all you must do is “kill enough inflation-zombies” will not work either. Palliative measures like eating chicken instead of pork will not kill inflation. Further, believing that there is a cure or a standard root-cause is foolish.
The Zombieland apocalypse started at a fast-food restaurant. The Train to Busan apocalypse was caused by a chemical leak at a biotech plant. You may think my zombie/inflation analogy is silly. Maybe. But it is as concise as anything you will read in an economics textbook.
Inflation is as much a psychological event as it is an economic one.
Gerald Ford took office in August 1974 during one of the worst economic crises in US history, with high unemployment and inflation rising to 12.3 percent that year as crude prices quadrupled in 1973. But crude prices stabilized and went sideways for six years. Inflation peaked in 1974 and went down to 5.7 percent in 1976.
But in October 1974, Ford gave his “Whip Inflation Now” speech, calling inflation “public enemy number one.” Even as actual price increases were going down, people were scared into buying in anticipation for further price increases. Alan Greenspan on ‘WiN’: “This is unbelievably stupid.”
If you think the price is going to be higher tomorrow, you buy today.
Because demand went down so much in 2020, we are seeing a kickback of prices going higher. Nerijus Poskus at freight forwarder Flexport: “Everything on the trans-Pacific is sold out.” January trans-Pacific imports were up 10 percent versus 2019, then jumped 51 percent in March. “So, we’re now at 1.5 times pre-pandemic levels.”
There has been an explosion in commodity prices since last year. Lumber: up 265 percent, Brent Crude: up 163 percent, Corn: up 84 percent, Copper: up 83 percent, Cotton: up 54 percent, Wheat: up 19 percent, and Coffee: up 13 percent.
Over the next months as Philippine inflation stays “high,” there will be those that will call it the “inflation apocalypse.” Fear not. Supply is out of balance and will return to normal.
Unless, of course, the government over-reacts with things like further “price controls.” The US did that with oil products in 1979 and inflation went to 15 percent. It took six years to overcome that government policy disaster for inflation to return to 1.9 percent.
Maybe the zombie movies are correct. Maybe it is all government’s fault.
E-mail me at firstname.lastname@example.org. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis provided by AAA Southeast Equities Inc.