One of my favourite Argentinean traditions is the Sunday barbeque.
Armed with a spatula and tongs, my dad would stand in front of the barbie for hours cooking different cuts of beef (skirt, ribs, flank), chicken, chorizos, blood sausage, provolone…you name it.
You really could feed a whole army.
The family would then spend hours at the table eating and talking away, only interrupted by the obligatory toast and applause for the cook.
It’s true. Argentineans — much like Australians — love a good barbecue…and beef, they eat lots of beef.
Argentina is the second country in the world when it comes to beef consumption per capita. The average Argentinean eats around 54kgs per year.
Beef is a staple. But it’s one that’s becoming increasingly harder to access because beef prices in Argentina have been rising…along with everything else.
Inflation in Argentina is now close to 50% a year. Over the last 12 months, beef prices have increased by over 65%.
This week to combat runaway beef inflation, Argentina has taken quite a measure for a country that needs to bring in US dollars from exports: they’ll be stopping beef exports for the next 30 days.
I mean, elections are coming up. Yet Argentina is one of the largest beef exporters in the world. Beef brings lots of US dollars into the country (around US$3.3 billion in 2020).
Argentina is Not Alone
This year, Turkey banned bulk olive oil exports also on supply and inflation fears. Russia placed a tax on wheat exports and on oilseed.
And then, of course, you’ve had all the trade tensions between the US and China, the US and the EU, China and Australia…during the pandemic we’ve seen supply chain disruption, technology competition, tensions and a rush towards resources, technology and vaccines.
After years of globalisation, it’s clear we’re seeing a move towards deglobalisation and distrust between countries that are bringing in trade tensions, protectionism, along with moves to push runaway inflation onto other countries.
I mean inflation is THE story right now. We have inflation in commodities. Timber, oil, iron ore, copper — to name a few — are spiking.
Inflation is also showing in agricultural goods. Take the S&P GSCI Agriculture, for example, which tracks the agricultural commodities market. It has increased by 66% in the last year.
We’re already seeing inflation in energy, commodities and agricultural goods, along with assets.
It’s only a matter of time before it starts to show up in consumer prices. Oh wait…ahem…that’s already happening. US consumer prices boosted to 4.2% in April.
Higher inflation threatens the stock and bond market. We’re already seeing a switch from growth to value, and less appetite for risk.
But don’t get me wrong, that doesn’t mean I don’t think there aren’t any good opportunities out there. In my mind, there are still plenty in long-term trends like the energy transition.
But back to inflation. Inflation is something to worry about. It acts as a tax on your money. It creeps up stealing your purchasing power and your wealth.
But it’s interesting too that higher prices aren’t yet deterring people from buying. You can see that clearly in housing.
Even with higher prices, there’s still a rush to buy for fear that prices will get even higher. With so much liquidity around, inflation feeds on inflation. If you think prices will be higher tomorrow, you rush in to buy today.
The big question to answer is that if this is all transitory, are we heading towards higher inflation or deflation?
Tug of War Between Inflationary and Deflationary
There’s a tug of war between inflationary and deflationary forces playing out right now.
On one hand you have all the stimulus from central banks, trade tensions, a move towards deglobalisation, supply chain disruptions, and higher demand which are all inflationary.
Then on the other, you have a global ageing population, high debt, automation and robotisation and, of course, the transition into renewable energy which are all deflationary.
It’s likely that with so much debt in the system and US unemployment rising and a disappointing jobs report, that the US fed keeps interest rates low for a while longer…even with higher inflation.
It’s why gold has started to move.
Gold does well when real interest rates are negative, that is when the inflation rate is higher than nominal interest rates. It’s because gold has no yield.
And gold is certainly looking appealing.
For The Rum Rebellion
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