Tariffs: what awaits us and how to counter it

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The upward march of interest rates continues unabated and so far with no end in sight.

Global central banks in every country appear to be in sync, aiming to rein in runaway inflation, but early signs indicate the hikes have had minimal impact, and there will be more to come.

Central bankers, usually cautious, have announced their firm intention to continue to do “whatever it takes” to bring inflation back to a target of 2% – while it currently stands between 6.1% in Australia and nearly 10% in the UK. The US and Eurozone are in the middle, but closer to the UK’s upper range.

Perhaps the most concerning part is the comment by US Federal Reserve Chairman Jeremy Powell acknowledging that tackling inflation “could cause a recession”, and World Bank President David Malpass quoted as saying inflation could “last for years”.

We hope that is not the case. Meanwhile, Reserve Bank of Australia Governor Philip Lowe said Australia was well placed to avoid recession.

Three commonly cited economic indicators offer some perspective. Semiconductor prices, shipping container movements and fertilizer production are among the most reliable indicators of activity, and the news is that all may have peaked.

Much of the inflation outcome was caused by supply chain, production and transportation issues, which are beginning to show signs of returning to normal.

Semiconductors have been sorely lacking for several years for a variety of reasons: from factory shutdowns caused by the pandemic to increased sales of phones, personal computers and gaming devices as people stayed at home.

One result was around 100,000 unfinished cars waiting for chips before they could be delivered. The previously estimated strong recovery in chip demand has been revised down, partly due to an expected drop in demand for mobile phones and computers.

Tariffs for maritime container movements monitored by the Drewry World Container Index show the 30th consecutive weekly drop in prices – by 10% to US$4,472 for a 40ft container, after falling 57% from the high of US$10,377 in September 2021, although still 21% higher than the 5-year average of US$3,704.

Fertilizer for agriculture are in dire shortage, partly because of the war between Russia and Ukraine, which has led to significant price increases for fertilizers and the materials used to produce them.

Russia, Belarus and Ukraine are among the world’s biggest exporters after China, which stopped exporting fertilizers in December last year to avoid domestic shortages and price spikes.

Sanctions, shipping delays, insurance issues and Russia’s exclusion from the SWIFT payment system have led to massive price spikes and supply shortages, contributing to the expectation of a food shortage important and a price crisis throughout the world.

However, beginning in July, a series of sanctions waivers were combined with US government encouragement to increase Russian exports.

How to counter the impact of rising interest rates

There has been a sea change in the supply of financing over the past few years. Banks being less willing to provide a retail presence and the proliferation of fintech lenders have changed the landscape.

Although the rates were low, it was convenient to accept the most available finance offer. Although the rates have increased, it may be possible to get a much lower rate than before just by shopping around.

Shop, ask questions and compare costs

Interest rates can provide a key indicator, but the true cost of financing is more nuanced.

Set-up, monthly and other fees are usually an additional cost to the interest charges contained in a finance agreement and the best way to compare is to request a table of the total cost of your proposed loan.

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