Johannesburg, 14 February 2023: The cost of living is spiralling upward worldwide, and many are struggling. Fred Razak, Chief Trading Strategist at CMTrading, offers his thoughts on the crisis's causes and potential future projections.

A bad cycle

"Inflation is a serious issue right now, and it's contributing more because it's a challenging cycle. What has created the current environment we are in now is that globally there were extremely low interest rates combined, in some cases, with stimulus packages, fuelling the economy too much, with property - and other - prices skyrocketing. Governments are now tapping on the economy's brakes by limiting the money in the marketplace and making it more expensive through higher interest rates, but this has ripple effects."

"The Ukraine conflict is also contributing to all of this. I don't know how much or to what percentage, but it's a factor, particularly as it relates to the supply of wheat and because there is a conflict and it involves Russia, which is a vast country. They may pull in Belarus, and it may spill over into Europe, and there is uncertainty as to how much Europe will be affected, and all of this creates uncertainty in the market."

"Before we saw this becoming an issue around the world, we were already seeing some smaller countries start suffering the effects of an increased cost of living – Lebanon, Turkey, and some countries in South America were all seeing their inflations skyrocketing. Increased geopolitical uncertainty is also contributing to this inflation across the board. So, there are a lot of factors that are contributing to this around the globe. It's not just the Ukraine war or the fact that we just came out of a pandemic. It's a combination of many things affecting us now."

Company record profits and a potential worldwide response

"Many people are calling for companies and the wealthy to pay larger taxes and central governments may be considering it. Whether they will actually pay increased taxes is another issue. By now, these companies are adept at finding tax havens that help them to sidestep the large taxes they would usually have to pay, but there needs to be some kind of change to that because in the long run, it's not sustainable."

"Now the layoffs being reported are not as bad as they seem in the current crisis that we are in, and the record profits we are seeing being reported by large companies are also a little bit of creative accounting, not manipulative accounting, creative accounting. What you consider a sale and how you declare it, or what you declare a cost and an expense and how you declare it is also important. Many of these large corporations have so much money they are making money from their money and not necessarily from their business anymore, which is also an important part of it."

Will we see an easing in the cost of living before 2024?

"I suspect that this year will see governments tapering off interest rate hikes, or at least not increasing them as aggressively as we have seen up until now. However, we will need to see that the markets are reacting to the interest rate hikes before we see a tapering off of interest rates, and how long it takes for that reaction is uncertain."

"There are two factors to this crisis: the economic side and the geopolitical side. Now the economic side to it is relatively easy to predict because as long as people at the central banks are doing their jobs, that will work itself out. Geopolitically, if there is going to be ongoing unrest between Russia and Ukraine or Europe, that will add some stress to the economic sector. Dealing with the geopolitical unrest will deal with the destabilisation of the economy. For as long as that is an issue, it will have an effect, and that's something to consider when trying to predict things moving forward."

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