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The Inflation thread


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The world oil prices are a major concern.


The governments need to get off their slow, collective rear ends and pump millions of dollars into alternative energy research and production.


They need to do it right NOW !


It's obvious to the most lay person that oil demand is increasing while supply remains constrained.

That oil is finite.

The price of oil is only $25 away from $100 per barrel.


Most governments are hopeless at planning ahead and concentrate a lot on on winning the next election.


The price of oil impacts on the cost of production AND supply of goods.


If the poo falls and stabilizes at $45 barrel then we can relax and inflation may be controlled.


I can't see it happening, can you ?



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Builders in America are going to increase the cost of building a new average sized home by $5000 because of rising materials costs including concrete and copper.


New home security is increasing as thieves can strip copper from the newly built home making the owner pay twice.


The rising prices are continuing to be felt and we can expect the interest rates to keep rising.


When we see a sustained fall in inflation then we can get on with the bull market.


Until then hang on or bail.


Keep check of monthly inflation here...



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In reply to: filament on Friday 16/06/06 08:17pm



I think you should direct this thread more into "Copper & OIL" price increases not inflation in general.


There are many stories about chinese & indian manufacturers who started researching substitutes for copper to be able to survive during the copper spike & keep production costing competitive specially for those manufacturers with long term supply commitments. I'm sure you've heard of some of these stories.


Copper price spike is a fact already for last year or more & it didn't stop the bull market from taking int'l markets to new highs, yes we had a correction but you know what that means...a test to new highs will have to come!


Imo, the fear of inflation is defenitely on med-long term but on short term (1-2 years) demand from china will eat whatever comes in their hands...you have to remember, they export their products to every household in the world & if raw materials gone higher it will be their customers that will be affected on LONG RUN not them. it will hurt their customers but not the extent that it will lower their manufacturing volume.


Demand in the world we're in is constant on raw materials that's the reason for the current hype, china & India have factories that will shut down if raw materials are unavailable.


Do you think china will shut down their factories? http://www.sharescene.com/html/emoticons/devilsmiley.gif




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QUOTE (IGO4IT @ Friday 16/06/06 08:37pm)


I like the inflation thread as it covers all the bases and can be expanded into miner,manufacturer, retailer and consumer perspectives.


The manufacturers have in the most absorbed the increased cost of materials by better productivity and planning.

HOWEVER you will find that they eventually pass the increased costs on.

They being the small to medium manufacturer.

The big manufacturers can bulk sell and use scale to overcome increasing material costs to some extent.


The small and medium manufacturer who has to compete with the big companies have been hurting and are now being forced to pass on the cost to the consumer.


This time lag is one of the reasons inflation is tricky to control, they can ease it but then it breaks out elsewhere kind of like a bushfire, a spark or ember can set of a new blaze.


Keep in mind it may take several years more of rate rises before inflation falls consistantly.


Another cause is money supply, the US government has hidden the m3 supply.


If they knew how much new currency was being printed investors would pull out of the US dollar and the greenback value would crash.

What effect will the extra money supply have on controlling inflation ?


There is more to inflation than rising commodities.

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In reply to: IGO4IT on Friday 16/06/06 08:37pm


Imo, the fear of inflation is defenitely on med-long term but on short term (1-2 years) demand from china will eat whatever comes in their hands...you have to remember, they export their products to every household in the world ......



assume this is true. do you expect every household to buy the same item twice, one is cheep that is inport from china or india and other one from their own country??

of couse not!! so they buy only one item right? how much copper or iron ore used for that item is same as before they inport it from china or india right?

why all of sudden every household in the world need to use heaps more raw materials????


i read a lot of so called gurus keep ramping this china stories from media. you know what, i like K1's word "guru.....humbug".


it's true china is in the growth phase right now but it just like any other growth country it will have ups and downs. IMHO

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Lets all realise that US$ currency is totally nothing to do with future as its on the way down. if not sooner it will be later. Many reason & last week Russia just announced using its roubel to trade its oil & metals & Iran will follow as well with a multi-currency bourse for its oil....also the chinese Yuan will soon become very famous.


Passing on the extra cost of products to customers due to higher raw materials may increase their living cost & may in many countries' cases decrease their standard of living (since costing increase but household income is same or increase in income is lower than increase in cost of products).


This equation above, when it happens, it's usually absorbed by households depending on the need for the product & its alternatives. China currently supplied ALREADY the alternative for the expensive products with cheaper "low quality" products that we can translate into low raw material costs products (e.g. plastic instead of metal) or same technology but more competitive pricing (e.g. no brand name TVs, etc....), so china is currently the winner competitor that we all buy from & losers are US & Europe because they're too expensive.


Thinking that the increase in raw material will decrease the demand for finished goods or lower certain economy's consumption is totally incorrect imo.


China is no longer a lower labour cost factory ONLY, lets not forget that they have the know how & the infrastructure of mass production that will still be competitive on the large scale production than any other 3rd world country that could try to manufacture goods using same module on smaller scale.


So economies of scale already works for China's benefit & competing with china will require other economies to risk similar infrastructure capital to build similar infrastructure to produce & sell same volume in a very short time frame to survive, which imo something that cannot happen in our life time.


China imo is not only the cheapest, its been working while others were asleep & thier know how is becoming more important than the low cost as some products now are becoming too cheap to be manufactured anywhere else as they're not financially feasable (e.g. tooth picks, dvd cases, low technology mass production products), so other countries STOPPED manufactured all these tiny consumables as local demand size & profit generated from it is not enough for them to survive.


Don't underestimate the chinese monster as if you look around you now you'll probably realise that 90% of your surrounding products are all made in china. if their cost is to be higher say 20% next year, it won't necesserly mean that you or me will think of having a factory to compete with china. financially & mentally its very hard & economies of scale & risk of competing with china will make us agree to new pricing & not argue any increase in products prices as there's no alternative.




I do expect households to buy the cheaper product wherever it will be manufactured, I just don't think anyone can compete with china NOW. May be new emerging asian economies may come out of no where...e.g. indonesia or philippines or even russia but defenitely I don't see them to be of any competitive danger to china in the near future.


Selling network for china will defenitely get their products to be more accessable to households than local alternative plus the economies of scale theory explained above.



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In reply to: IGO4IT on Saturday 17/06/06 01:56am

'Lets all realise that US$ currency is totally nothing to do with future as its on the way down. if not sooner it will be later.'


It has a lot to do with inflation because if it is worth less, more of them are needed to buy overseas goods.


'it's usually absorbed by households depending on the need for the product & its alternatives.'


Thats a good point i never considered, the consumer can delay the inflationary effect by changing their type of purchase or going without luxury or entertainment items.


' Maybe new emerging asian economies may come out of nowhere'


India is preparing to be the next China.

Give them ten years to build factories and so on.

Guess what will happen to the price of commodities then !



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In reply to: IGO4IT on Saturday 17/06/06 01:56am


chinese Yuan will soon become very famous


Why so? To my knowledge, it is not freely tradeable.


The dollar is in decline, I agree, but what world will replace it?


My pick is:

(1) Euro as primary reserve currency in Europe & Africa.

(2) Yen as primary reservce currency in Asia (or defacto the new Asian common currency).

(3) American dollar as primary reservce currencyin the Americas.


That is, a world with one dominant currency will turn into a world with three dominant currencies.


Also IGO, heard of Vietnam? India? What are you talking about "no alternative to China". China's "advantage" is its teeming masses of slave labourers. Vietnam and India also have masses of poor and the determination to move into China's territory.


Note that China's attempt to move into the services area (e.g. call centre work) FAILED miserably. India's got that market all sowed up.


China competes on price, not quality (as anyone who has bought cheap Chinese **** will tell you!). And there are other countries competing on price too. Rest assured their margins will be squeezed by the current commodity price hikes.


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If products out of China become 10 % more expensive as a result of raw material costs and the devaluation of the USD, then the surely the overstretched buyers of all these products will stop buying them so frequently, particularly those non essential items. Imagine suddenly every American grandmothers suddenly buys five less dud plastic toys a year and that twenty dollar battery operated screwdriver that goes bung after six months stays on the shelf while Dad concentrates his spending power on essential items like beer.


Little by little, slab by slab, the US terms of trade with China begins to improve, private sector debt levels plateau (maybe), and inflation concerns subside as the costs of raw materials fall back on moderately reduced demand from China.


Does China fall in a hole though? I think the five hundred million or so people in the region taking up the challenge to own a dud battery operated screwdriver should soak up the oversupply. The changing spending patterns in American will be offset by the emerging spending patterns in Asia.


And maybe with a bit of luck, the ball keeps rolling along nicely.







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Very interesting topic, thanks filament for such a thread.




It has a lot to do with inflation because if it is worth less, more of them are needed to buy overseas goods.


Yes, the world is missing an alternative but Euro being more stable with a lot less political volatility could be imo a short term alternative but it misses the volume as there's not much of it out there to replace the US$ 100%. If me & you say that now then be sure someone is getting scared & looking already for an alternative to put their money in. Gold could be an option ??!


The more politcal issues between US (as a single economy) & other countries in the world whether in middleeast or N/Korea or even in Taiwan, the more unsafe we'll feel holding US$ the more we'll try to find alternatives. what is the alternative? Time will only tell.


The drop with US$ will defenitely result to an increase to the alternative & the swap in value will almost be immediate & consistent. If Euro will take over then defenitely manufacturers & consumers will be very sensitive to any major drop in US$ & will rapidly switch over in no time without allowing their money to devaluate.


One Up:


chinese Yuan will soon become very famous. Why so? To my knowledge, it is not freely tradeable.


It is not now but there are news everywhere of China trying to add more Gold reserves to freely trade the Yuan internatinally on the long term.






Increase in neccesities pricing may affect the level of consumption ASSUMING that only necessities prices that were inflated & all others factors are constant.


For example: if finished goods increase will come at the same time of an increase in pension for that granny you mentioned or if her rental income had increased as well then obviously she'll have no problem buying same number of plastic toys.


There is a level imo that a percentage of inflation could be absorbed in finished goods by households considering that the increase in income is consistent (of course in reality with lower rate) but then the world gets to define what's essential & what's an accessory. Yesterday's fan is today's Air-con in first world countries...but fans are still used more & more in many 3rd world countries because of increase of population & poor distribution of wealth is usually getting the poor majority to multiply faster & demand more.


Lets all remember that a tv/fan/stereo/oven/fridge, etc..... were NOT necessities 50 years ago in 3rd world countries, now they are!


India is developing itself to become another world factory but I still think on short term China will be able to advantaged to its current selling networks & market share but India may defenitely surprise us 1 day with it "heavier" / industrial products sales.



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