Mr Ali Khwaja, Chairman of KTrade Securities, a Pakistani-based stock and commodity outfit, says the U.S. inflation can impact negatively on the developing world.
Khwaja, who communicated this during a virtual analysis of the KTrade Securities research report, said the highlight had become important because the U.S. grappled with persistent inflation.
He said that no country was immune to fallout of inflation, adding that the U.S. was not immune to fallout either.
‘Concerns are about possible 1970-style stagflation amid slowing economy and stubborn inflation.”
According to him, small and medium businesses can bear the brunt due to compounding impact of high inflation in the mass market.
‘Inflation effects often add up; when things become too expensive that people start cutting-down on expenditure and new hiring in businesses, a recession is in sight.
‘Next year, when people try to remortgage their homes, they will find it is very expensive, as seven per cent is a very high interest rate.’
He quoted t
he Federal Reserve Chair, Jerome Powell, to have expressed confidence in curbing inflation, saying it was not as high as it was after the Producer Price Index (PPI).
He cited the recent data from the U.S. Labor Department to have pointed to a 0.5 per cent uptick in the PPI for April and a rebound from the 0.1per cent dip in March.
‘Earlier, the U.S. Commerce Department stated consumer prices witnessed a 3.4 per cent year-on-year increase in the first quarter, much higher than the two per cent target.
‘These figures dented hope; yet for rate cuts within the year, dealing another blow to market expectations after several wrecked rate-cut prospects since the beginning of the year.
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‘This will change dynamics, because interest rates are already at 23 year high as the impact of high interest rates has not come to small business owners and real estate owners.
‘Debt contracts they had are not up for re-pricing; when re-pricing kicks in later this yea
r, it will be a massive hit to consumers that can lead to recession later this year and through 2025.”
The chairman explained that the costs of debt servicing are soaring; particularly in currencies across Asian markets, including Malaysia, Indonesia, Thailand, India which are at historic lows.
‘In some cases, central banks have to intervene to defend their currencies; when a protectionism policy is adopted, it will be very difficult to control inflation.
‘The reason why the world had a period of low inflation and high growth was because of the benefit of trade.
‘Yet over the last five years, protectionism has led to lesser trade, higher tariffs on consumption and higher fuel prices, all of which contributed to higher inflation,’ he said.
He decried manipulation of economics for political gains as a way to likely backfire, stating that higher inflation led to political and societal friction by creating a gap between the rich and the poor.
Khwaja also said such could strain the economy of any country.
He quoted Dr Abid Suleri, Executive-Director, Sustainable Development Policy Institute (SDPI), saying if high inflation persists, the new government faces challenges in meeting expectations of the electorate.
‘The first thing the new U.S. administration might do after the election is to reassess the real value of dollars.
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‘It has two options; in my opinion, one is to depreciate the value of U.S. dollar vis-a-vis other major currencies; which is a step no outgoing government will like to take.
‘Otherwise, the U.S. itself will become more and more non-competitive; not only against China but also against the EU, Japan and other trading nations,’ Suleri said.
Source: News Agency of Nigeria