Inflation is already creeping into some corners of the world economy

The big question in financial markets is whether the post-pandemic recovery will bring a burst of inflation. In some corners of the world economy, it’s already arrived.

In commodities like soybeans or copper, industries like shipping and countries like Brazil, prices have been climbing rapidly –- for reasons directly tied to the disruptions of Covid-19, the policy response, or the surge in demand that comes with hopes of recovery.
 

None of this is enough to settle the great inflation debate one way or the other.

Hawks say that pockets of inflation today will turn into across-the-board price increases tomorrow, with stimulus providing the fuel. Skeptics see price rises as largely driven by temporary spurts or bottlenecks -– and point out that similar alarm bells were sounded after the 2008 crash, when inflation never showed up.

Following are some of the areas already seeing a surge in prices -- and how they connect to the broader inflation picture.

Metals
 

Government efforts to lift economies out of the pandemic slump have involved spending on infrastructure projects, and financial support for households who spent some of the cash on electronic gear. Both are contributing to roaring demand for metals that’s pushed prices steadily higher.

Copper has been rising for almost a year, a rally that accelerated in February before falling back this month. Iron ore and nickel also hit multi-year highs, and steel prices more than doubled in the last six months.

All these increases add to the costs for manufacturers. That’s one reason China posted higher-than-expected producer price numbers this week.

The run-up in metals is the "revenge of the old economy" -- with pandemic stimulus driving purchases of consumer durables -- and also shows the demand for new-economy green initiatives, with some $16 trillion in capital spending planned over the next decade, Jeff Currie, global head of commodities research at Goldman Sachs, told Bloomberg Television.

Semiconductors
 

Semiconductors are a key component of many in-demand items during the year of lockdowns and work-from-home, from laptops and televisions to webcams. Prices of some varieties, like memory chips, have climbed this year.

The surge in demand has run into a supply crunch that’s been exacerbated by geopolitics. The dominant players in the $400 billion industry are Taiwan and South Korea, and their exports are increasingly being caught in US-China crossfire, with sanctions on Chinese producers giving another lift to global prices.

The upshot has been frustration and higher costs for buyers. Tesla Inc. had to slow production lines. German car-parts maker Continental AG said the shortage will likely cost the company about 200 million euros.

Food
 

The post-pandemic rebound is one driver of higher food prices all over the world. In the US, chicken legs are rising as big-order restaurants come back online. China’s domestic recovery is spurring greater demand for soybeans, whose prices have climbed more than 60 per cent over the past year.

There are plenty of others causes too, including the common ones of drought and disease. In China, an outbreak of African swine fever threatens a repeat of last year when the virus killed tens of millions of pigs in Asia.

Food costs are especially important for policy makers in emerging markets, where they make up a disproportionately larger share of spending and more households are at risk of hunger. In the Philippines, where food costs have pushed inflation close to 5 per cent, the government has imposed price caps.

Energy
 

Alongside stronger demand in a recovery that’s likely to see more travel, oil has also been hit by a supply squeeze after producers decided to cap production. That’s helped drive crude toward $70 a barrel, a level it hasn’t reached in almost two years.

That’s especially threatening for emerging nations that rely on imported energy, like Turkey and India. They risk being pushed into bigger trade and budget deficits that can scare off investors and weaken currencies.

Higher fuel costs hurt drivers everywhere and reach into almost every corner of the economy. In Brazil and Mexico, for example, the cost of LPG canisters used for cooking in poorer households -- wealthier ones are more likely to be connected to the natural gas grid -- has jumped this year.

Housing
 

Low interest rates and the spread of work-from-home are driving property-market booms in many countries, especially the US and UK

So far, there generally haven’t been comparable increases in rental costs -- but that could follow. In the New York Fed’s latest consumer survey, rents were expected to soar 9 per cent by next February. Windfall gains for homeowners and steeper prices for renters are a recipe for widening inequality.

In China, the top banking regulator has worried aloud about the risk of a bubble in property markets, pointing to a "very dangerous" trend toward speculative buying and warning that tighter policy may be needed to rein in lending.

Shipping
 

A shortage of containers is behind the jump in shipping prices over recent months, threatening to add a new layer of costs for imported goods.

Governments and businesses have been scrambling to find fixes. State-owned Indian Railways transferred empty boxes to inland depots from seaports at no charge, while a German supermarket chain briefly examined the option of trucking imports from China.

German chemicals maker BASF SE, which raised prices for clients by 7 per cent in the fourth quarter, says it’s been struggling with the container crunch as well as higher precious-metal prices. All kinds of US retailers have been reporting logistical troubles that threaten to push prices up in their stores. Shipping costs aren’t captured in US import prices, making it harder to figure out how they’ll be passed on to consumers.

Brazil
 

Brazil’s inflation rate jumped to 5.2 per cent in February, about double what it was six months earlier, and it’s already forcing policy makers to change course.

The country has spent more on pandemic relief than almost all other emerging economies -- rivaling the US by running up a budget deficit of almost 14 per cent of GDP last year. It also has one of the world’s worst Covid outbreaks and is a vaccination laggard -- so the measures will likely have to extend into 2021. All that spending has weakened the currency and fueled inflation fears. Just a few weeks ago, the central bank was talking about keeping interest rates at a record-low 2 per cent for longer. Now it’s expected to hike next week.

While Brazil is an outlier in key respects, that’s essentially the chain of events that policy makers and investors worry about in other emerging economies too -- and maybe even some developed ones.