Davide Chiantore on the Ukrainian grain crisis and the rise of Inflation
The long-lasting war between Russia and Ukraine shows no sign of ending, the more time passes, the more we see a continuous evolution on the war scenario.
The latest weapon that has entered the field in this latest phase is that of wheat and, more generally, foodstuffs such as sunflower oil and soya, which are produced in Ukraine.
Russia at this stage has decided to put a forced blockade on Ukrainian exports to the rest of the world, especially to the Mediterranean, Europe, Africa and other areas that are annually served by Ukrainian production.
There are also financial implications, all North African countries have seen a major collapse in the prices of government bonds, there is also a component due to rising rates in the United States that has a negative impact on North African countries and more generally on all emerging countries, especially the most indebted ones, but there is no doubt that Unibond prices, such as Tunisia’s or Egypt’s bonds, have plummeted considerably precisely because of the fear that tensions due to food shortages could generate greater instability among rulers and a greater risk of default by the country.
In this scenario, Russia could increase pressure to reduce Ukraine’s ability to export grain; it is now exerting strong pressure on the Black Sea front, but it could also bomb all internal lines of communication with missiles, such as the railways, which is another of the apparatuses used by Ukraine to export agricultural products, so we could see a total blockade of exports in the coming weeks.
Inflation, which is considered a recent problem in the markets and also on the economic level, will tend to rise due to these inflationary pressures on foodstuffs.
A further problem is being added to an already delicate situation that could create tensions at the political level in Africa and at the financial level in particular on rates in Europe.
In the United States, the situation is no better, particularly in North America, the impact of this situation is being felt, the shortage in supplies and raw material supplies shows no sign of abating. Nestlé, for example, the biggest food company in the world, just this week made it known that it is exporting from Europe to the US some basic components for the production of baby and children’s food, precisely because of the shortage of raw materials. Europe has a few more reservations from this point of view and the Swiss multinational is therefore taking this opportunity to transport some raw materials overseas so as not to have to block sales and business on the American side.
Rising inflation is forcing Central Banks to raise rates, this will also have an impact in the real estate sector on the cost of mortgages. It is not known exactly how much rates will rise, but an increase is expected in the coming weeks and months, already the market is pricing it in.
The rise in rates is having a fairly intense direct impact on lending to companies and to all those who want to buy property through the use of a mortgage or loan. In turn there will be an impact on real estate market prices, it is to be expected that the rise in mortgage and loan rates will follow a long-term trend, so a real collapse in real estate prices is to be expected as after many years where rates were close to 0-1.5%, they are expected to reach as high as 5-6% in euro currency and maybe even something more in dollar terms.
Inflation on the one hand and rising rates on the other risk stalling economic growth, the markets are experiencing reversals at the moment and there is turbulence precisely because they are pricing in these risks. This is probably not the best situation to buy a property because on the one hand you can still bargain for a fixed rate with a duration of 20-30 years, but on the other hand you risk buying a property that in a few months or a few years will be worth much less on the market because there will be a smaller supply and there will be a higher cost of money, therefore property prices as well as financial assets tend to be compressed downwards.