AFP

Inflation has surged back to levels not seen in many developed economies since the 1970s and 1980s. Economists and central bankers at the European Cental Bank’s conference in Portugal warn it will take time before price rises cool.

– How did we get here? –

For the ECB, established in 1998 to oversee the European single currency, the burst of inflation is without precedent.

“The current levels of food and industrial goods inflation have not been seen since the mid-1980s,” ECB President Christine Lagarde said in her remarks at the conference on Tuesday.

Likewise, the “increase in the relative price of energy in recent months is much higher than the individual spikes that occurred in the 1970s” during the oil shock, Lagarde said.

The take-off in inflation, over eight percent in the eurozone in May, was at the end of a “a sequence that happens in a chaotic world”, Richard Baldwin, an economics professor at the Graduate Institute of Geneva, told AFP.

The supply shock caused by the the outbreak of the coronavirus pandemic in 2020 had been followed by a “demand twist” where people used their money more on goods, Baldwin said.

Instead of seeing this fading, the Russian invasion in Ukraine is causing “a huge spike in fuel and food prices” and heaping pressure on inflation, he said.

But it is not just energy. As health restrictions fall away, consumers are turning back to services, while the pent-up demand for tourism is being released, Lagarde noted.

“There is no playbook for this inflation,” said economist Baldwin.

– How long will it stay like this? –

With no end in sight for the war in Ukraine, the disruptions caused to the supply of energy could keep prices high for some time to come.

Domestic factors could also prop up high inflation rates, with workers demanding higher and higher compensation to make up for the rising cost of living.

Adding to the pressure are low unemployment rates, handing more leverage to workers looking for pay rises.

– What can central banks do? – 

The message put out by central banks is one of their most powerful tools to calm markets and control prices.

But the task at hand “has become quite difficult in view of high inflation numbers” and as “people feel high inflation every day when they’re buying food or going to the gas station”, Isabel Schnabel, a member of the ECB’s executive board, told AFP.

“We can do little about current inflation, but we will take decisive measures so that inflation returns to our (two-percent) target over the medium term,” Schnabel said.

“Once inflation is there and it starts to increase the expectations and wages, monetary policy should act,” Sebnem Kalemli-Ozcan, an economic professor at the University of Maryland, told AFP.

That is what the ECB has planned to do, announcing an interest rate hike for July, its first in over a decade. But the Frankfurt-based institution has to be careful not to completely choke off sputtering growth.

“The question is not if the prices will go down after some time, but what will happen to growth,” Kalemli-Ozcan said.

That is why comparisons are being made with the 1970s and the “stagflation type of situation” where inflation persisted while growth rates faltered, she said. “In Europe there is a risk of stagflation.”

The amount of fish, shellfish and algae caught in the wild and farmed in aquaculture hit a record 214 million tonnes in 2020, the Food and Agriculture Organization said Wednesday.

Driven by a sustained surge in aquaculture, the new record is good news for a world facing price hikes and food shortages due to the war in Ukraine, disrupted supply chains, and inflation. 

“The growth of fisheries and aquaculture is vital in our efforts to end global hunger and malnutrition,” said FAO director Qu Dongyu.

But overfished oceans, climate change and pollution — if left unaddressed — could threaten that potential, the UN agency warned in its 2022 state of the world fisheries report.

“Aquaculture growth has often occurred at the expense of the environment,” it said. 

“Sustainable aquaculture development remains critical to supply the growing demand for aquatic food.”  

Production of aquatic animals in 2020 — totalling 178 million tonnes — was evenly divided between fisheries and aquaculture.

The remaining 36 million tonnes was algae production.

Yields of fish, shrimp and other shellfish destined for human consumption is more than 60 percent higher than during the 1990s, far outpacing population growth, according to the report, released during the UN Ocean Conference in Lisbon.

On average, people worldwide consume over 20 kilos (44 pounds) of aquatic foods per year today, more than double the amount 50 years ago.

Globally, 17 percent of the protein consumed by humans comes from aquatic sources. In many Asian and African countries, that figure rises to more than 50 percent, according to the report.

Wild and farmed food from the seas and inland waters are also a critical source of essential omega-3 fatty acids and micronutrients, recent research has shown.

“Aquatic foods are increasingly recognised for their key role in food security and nutrition,” Qu said. 

Nearly 90 percent of aquatic animal production is for human consumption, with the rest destined for non-food uses such as fishmeal and fish oil.

Asian countries were the source of 70 percent of the world’s fisheries and aquaculture of aquatic animals in 2020. 

China remaining by far the top fisheries producer, followed by Indonesia, Peru, Russia, the United States and Vietnam.

So-called capture fisheries in the wild — which have stagnated since the mid-1990s — dropped by four percent in 2020 compared to the average of the previous three years.

Part of the drop can be attributed to disruptions caused by the Covid pandemic, but long-term decline is due to overfishing.

“The FAO estimates that 34 percent of caught fish come from overfished stocks,” University of British Columbia economist and fisheries expert Rashid Sumaila told AFP.

“But they are very conservative,” he added. “Independent studies put that figure at 50 percent.”

Fears of a recession caused by sharp interest rate hikes aimed at fighting soaring inflation sent Asian and European markets tumbling Wednesday, tracking a sharp drop on Wall Street.

The hefty selling came after more than a week of gains across the world caused by hopes that any signs of contraction could give central banks room to ease up on their pace of monetary tightening.

The fluctuations on trading floors show how tough it has become for investors to find their feet, just as financial policymakers struggle to find a balance between containing prices and maintaining economic growth.

Wednesday’s selling came after New York’s three main indexes tanked in reaction to data showing confidence among US consumers — who are a crucial driver of the world’s top economy — had fallen to its lowest level in more than a year.

The mood-sapping reading was partly driven by a feeling inflation would persist, suggesting consumers are not sure the Federal Reserve’s aggressive efforts to tame inflation will work.

The news overshadowed a surprise move by China to slash the quarantine period for incoming travellers, raising hopes for further relaxations that can allow the country’s giant economy to recover more quickly.

Hong Kong led losses as tech firms took a beating, while Tokyo, Shanghai, Sydney, Seoul, Mumbai, Manila, Taipei, Jakarta, Bangkok and Wellington were also well down.

London, Paris and Frankfurt all fell in the morning.

Top Fed officials on Tuesday tried to play down the chances of a recession, with the heads of the Fed in San Francisco and New York saying they were upbeat a soft landing could be achieved.

“I see us tapping on the brakes to slow to a more sustainable pace, rather than slamming on the brakes, going over the handlebars and having the proverbial recession,” San Francisco’s Mary Daly told an online event hosted by LinkedIn.

“I wouldn’t be surprised, and it’s actually in my forecast, that growth will slip below two percent, but it won’t actually pivot down into negative territory for a long period of time.”

– ‘Not looking pretty’ –

But analysts were more sceptical, with Sim Moh Siong at Bank of Singapore saying “low US consumer expectations suggest weaker growth in (the second half of 2022) as well as growing risk of recession by year end”.

The Conference Board’s chief economist Dana Peterson warned the United States will likely see a recession in late 2022.

And Emily Weis, at State Street Corp, said: “The Fed still believes it can thread that very fine line between tightening financial conditions while not hurting the economy too much.

“We’re still not sure they’re going to be able to pull that off. That’s what we’ve seen reflected in the markets over the last month or so.”

Meanwhile there was a word of warning for the outlook as companies begin to feel the pinch.

“With investors laser-focused on US growth and inflation data, both of which tanked stocks (Tuesday), do not forget earnings cuts are now coming through — the red ink is flowing through stocks, sectors, and aggregated strategy models,” said Stephen Innes at SPI Asset Management.

“All regions, countries, industries, and stocks are getting printed red with broad strokes. It is not looking pretty.” 

Oil prices dipped though remain elevated following a run-up in recent days on expectations that demand will continue to rise — despite recessionary talk — and supplies remain tight owing to the ban on imports from Russia.

And while G7 leaders agreed to work on a price cap for Russian oil as part of efforts to cut the Kremlin’s revenues, observers warned that will not likely have a massive impact on prices.

“The easing of China’s zero-Covid policy helped oil to the third day of gains following a decent correction in recent weeks,” said Craig Erlam at OANDA. 

“As did reports that the UAE and Saudi Arabia are producing near capacity, in stark contrast to claims that both are holding back and could do more.”

He added that OPEC and other major producers were 2.7 million barrels per day below target in May, “taking the total shortfall under the agreement to more than half a billion”.

“Even sanctions being lifted on Iran and Venezuela can’t do much against that backdrop. It may well take a recession to return oil prices to sustainable levels any time soon,” he warned.

– Key figures at around 0810 GMT –

Tokyo – Nikkei 225: DOWN 0.9 percent at 26,804.60 (close)

Hong Kong – Hang Seng Index: DOWN 1.9 percent at 21,996.89 (close)

Shanghai – Composite: DOWN 1.4 percent at 3,361.52 (close)

London – FTSE 100: DOWN 0.4 percent at 7,296.70

Dollar/yen: DOWN at 136.10 yen from 136.20 yen Friday

Pound/dollar: DOWN at $1.2191 from $1.2187

Euro/dollar: DOWN at $1.0513 from $1.0525

Euro/pound: DOWN at 86.23 pence from 86.32 pence

West Texas Intermediate: DOWN 0.3 percent at $111.47 per barrel

Brent North Sea crude: DOWN 0.4 percent at $117.55 per barrel

New York – Dow: DOWN 1.6 percent at 30,946.99 (close)