A woman shops inside a Garcia’s supermarket in Quezon City, Philippines on September 5, 2022.

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Asian business leaders warn consumer goods inflation will persist as the ‘new normal’ as the global economy undergoes structural change.

Rising interest rates may ultimately dampen asset prices, but deglobalization and decarbonization could continue to push up the cost of commodities, said the chief executive of emerging markets investment manager Gateway Partners. said V. Shankar.

“There are some structural and intractable problems that have led to higher prices, so inflation will continue regardless of what central banks do,” Shankar said at the Forbes Global CEO Conference in Singapore. ‘ said.

“Despite helicopter money and zero interest rates, the reason the prices of commodities have fallen for so long is due to a huge and efficient manufacturer called China and the consolidation of global supply chains.”

This integration paved the way for cheaper products. But now, catalyzed by the pandemic, there are new threats to the interwoven global supply chains as countries seek to bring manufacturing back to their homes or friends, Shankar said.

In July, U.S. Treasury Secretary Janet Yellen emphasized the need to make supply chains more resilient through “friendshoring,” doing business with countries that share Washington’s values.

Shankar added that this would disrupt globalization and drive up prices as manufacturing would no longer be based on number and cost considerations.

Inflation is here to stay as there are inevitable train wrecks and political and social pressures collide with the economy.

V. Shankar

CEO, Gateway Partners

Efforts to decarbonise will also contribute to higher prices as there is not enough supply of climate-friendly commodity components to meet demand, Shankar said.

For example, global production and consumption of graphite for electric vehicle batteries could rise from 1 million tons last year to 5 million tons in 10 years. There are no indications of where that extra production is coming from, Shankar says.

“If you look at the fossil fuel industry, it is investing at a pace that makes it look like we are transitioning to a net-zero economy by 2035, while the renewable energy industry is about a third of the pace needed for net-zero. We are investing at a pace of 2050,” he said.

“There are inevitable train wrecks, political and social pressures are clashing with the economy, so inflation will stay here.”

Ho Kwon Ping, executive chairman of Banyan Tree Holdings, a multinational hospitality group in Singapore, agreed, saying rising interest rates were not the new normal and zero or low interest rates were an “abnormality”. .

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“I think the real anomaly was a period of zero or negative interest rates for too long, with central banks and others reacting too strongly,” Ho said.

“In my view, the world is probably returning to a long-term situation of low interest rates and hopefully low inflation, but zero inflation, zero interest rates is an anomaly and not the future we are seeing. “

US-China tensions

Underscoring these concerns, whether deglobalizing or decarbonizing, are increasing competition between the United States and China, the potential for global trade and business to split into two blocs, and You have to choose one or the other.

Ho said many business leaders in the Asia-Pacific region and other parts of the world should start “scenario planning” to ease potential sanctions against China.

Even China itself is preparing to become self-sufficient in key areas such as ensuring adequate supplies of energy, food and critical commodities, Ho added.

“What I find really strange is the decoupling between this very aggressive China and the rest of the world,” Ho said.

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“With operations in more than 20 countries, we struggle to understand where the pressure is coming from to not or to do business with certain countries. I think it would be very uncomfortable to be involved in such a situation.”

Ho said global business leaders may have to abandon the “luxury notion” that the United States and China will work together again.

Chairul Tanjung, chairman of CT Corp, one of Indonesia’s largest conglomerates, urged countries to consider new frameworks for better cooperation.

“Now everyone, every country is trying to solve their problems in order to ‘win’ the situation,” Tanjung said.

He added that a key way forward is to focus on critical global issues such as climate change.

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