Shortage, great blackout, hyperinflation … we don’t know which part is true and which part is not of this disturbing news. We only know that since we have experienced a pandemic, which is still “raging”, anything is possible. So should we buy toilet paper and cans to survive this Christmas? Is it better to go shopping for kings in November to avoid running out of gifts on the 6th? Is it the best time to buy electronic products or is the lack of chips going to make them so expensive that it is better to wait for them to return to “normal”?
Do not panic, to address all these issues, we have spoken with Antoni Iraola, Operations Director of Instant Online Loans. Iraola tells us about the raw materials that are becoming more expensive and why, the possibility that interest rates will rise in 2022, that Spain is not going to run out of supplies and how they can face the new situation for SMEs and the self-employed, among other things.
What raw materials are getting more expensive
This 2021 is being the year of recovery worldwide and this is driving the price of basic goods, although there are also other raw materials that have fallen so far this year, and will continue until the end of this year. Most of them less essential, but no less important.
At the same time, we find five raw materials that condition our lives a lot, and will continue to do so.
1 – This year’s “inflation star” is natural gas. That this exercise has advanced 104.7%, and continues to be unstoppable.
And, precisely for that reason, it is being noticed in the electricity bill in such a determining way throughout Europe. We see the great dependence that countries have on this raw material, after the progressive abandonment of coal and the stability of nuclear energy, which has not expanded in recent years, but is in decline.
The rise in natural gas is the consequence of a number of factors ranging from bottlenecks in Russian supply, interruptions in Norway due to infrastructure improvement works in the country, and demand for liquefied natural gas from Asia (which pays more for each ship that transports it). Also due to the cut in the pipeline from Algeria to Spain.
2 – Tin It is the second raw material that rises the most this year with a rise of 78.75%. Metal as a third raw material, and which is used mainly for welding in the electronics industry, rises driven due to logistics and supply problems in Myanmar. This Southeast Asian country is the third largest tin producer in the world and is struggling to contain SARS-COV2, while dragging a huge and deep political crisis after the military coup in February.
3 – The West Texas oil, and a reference in the US. So far this year, it has already climbed 54.47%, and continues to rise unstoppably.
After the oil debacle last year due to the Pandemic, the barrel of Brent is also climbing positions and is revalued by 50.75% in 2021 thanks to the reactivation of tourism and the normalization of mobility, after a strong demand.
4 – The coffee. Agricultural raw material that increased the most with an increase of 52.36%,
5- The aluminum. This recorded a rise of 47.97% along with corrugated steel used in public works, 36.57%.
Hyperinflation the set of all price increases that generate serious economic crises, given that the money ends up being worth practically nothing and the price of goods and services is excessive. It is true that, for the most indebted countries, such as Spain, this scenario is more than worrying, since they depend on low interest rates to keep financial spending under control. But all this is changing.
In the case of our country, with a public debt already at 120% of GDP, it needs to keep financing cheap for several years. We are not succeeding because prices are starting to skyrocket.
This, in situations of tranquility and not in post-pandemic situations like the one we live in, can become controllable, but in the case of Spain and other countries, it tends to precipitate central bank intervention. Which has been speculating for months now.
The rise in interest rates and with the debt that we have right now, nothing could be more catastrophic for the economy, that central banks begin to harden economic situations and interest rates start to rise. Soon we will see how individuals such as companies will be affected.
So this right now is the great latent risk of the economy caused by hyperinflation: the rate hike expected in early 2022.
And it is that prices are skyrocketing throughout the European Union. The maximum in two years, since October 2018. And Spain with inflation already at 2.7%, we have absolutely skyrocketing prices, mainly due to the increase in raw materials, lack of supplies, and above all for the electric shock that we are living.
That price rise is the great economic fear of any government or economy that is willing to come out of a huge crisis after the pandemic, because with it the central banks are obliged to act, and that is a very bad sign. And we are talking about intervening.
If this price hike is for real, the European Central Bank is going to have to raise interest rates. That is, it will raise your mortgage if you have it at a variable rate. You will have to pay more interest in the use of financial tools with your company. And this will reduce the room for maneuver to keep moving forward.
In my humble opinion and seeing the course of events, I believe that the worst will be at the beginning of the year, as soon as interest rates begin to be revised. Will brake undoubtedly the upward inertia of the economic recovery, reducing financial resources to all, individuals and companies.
Protection of SMEs and freelancers
As the head of operations for a small private equity company, when a client asks me about this issue, I say the following: Affirm these four points and try not to neglect them. In addition to staying firm with your commercial strategy, and diversifying.
- Secure the income. Take into account that, if inflation is 2% and today you need € 1,000 to live, next year you will need € 1,020 to live exactly the same. To do this, you will need to protect business and managerial skills, manage technology and be prepared for the changes that come, which could not be few.
- Having a business or reinvesting in it is a very good option. And it is that being a business owner gives you the possibility of controlling prices and ensuring your income. In addition, it is an excellent alternative to diversify and to generate additional income. This translates into higher purchasing power that helps offset the rising costs of an inflationary economy.
- Try to transform money into assets. Money is what depreciates the most in an inflationary or hyperinflationary process, so try to protect your money by investing in the stock market or in equities. To do this, look for a good professional. It can also be useful to buy real estate or personal property that appreciates in value, works of art, collectibles, gold and cryptocurrencies, as alternatives.
- Protect your assets. This is the best way to protect your assets against inflation or hyperinflation. If you have liquid, cancel debts associated with equity since they will be affected by the inflationary process, it is highly recommended. Also, you can place your money in countries with strong and stable currency, above the euro are the Swiss franc, the Japanese yen and the Norwegian or Swedish Krona. But, that is already more complicated to coordinate and manage.
I believe that we will not see in Spain the same thing that is happening in the UK with freight transport. There will be no food and drink supply problems, just as nothing happened during the pandemic thanks to our robust supply chain. Another thing is that some logistics companies will fail, but it will be due to increased costs and the lack of solvent customers, or a good financial recurrence.
Although it may not seem like it and many doubt it, in Spain many things are done well. And one of them is a huge business and logistics work for both SMEs and large companies. We have great managers at the helm of these companies.
But as I mentioned earlier, something quite different is the increase in the cost of these products due to a rise in fuel or energy supplied by the industries that manufacture or handle them; Undoubtedly, this will condition and stress the circulation of goods, but not only in Spain, but worldwide.
Millionaire tenders deserted
Currently there are already millionaire tenders that are being left deserted and more than you will see. It may be because of the situation, even I would dare to say that for opportunism. Everything that is applied to the debt of a state, sooner or later is collectible, so many are going to do the August with it. Here is a brief example:
Castellón (07/21/2021). The Port Authority of Castellón will process again the tender for the work of the railway bridge and northern railway connection to the port of Castellón, after being deserted in its first call due, as recognized by sources from PortCastelló, to the rise in prices that have suffered from world level raw materials, mainly steel, which is essential to build this project.
The rise in prices of basic raw materials for construction, including the steel, is due to the reactivation of global investment demand after the health crisis. In the amount of the railway bridge construction project, 16% corresponds to structural steel, 9% to corrugated steel and 16% to concrete. The basic bidding budget for the work was published for 15,128,531.43 euros (VAT included) and the deadline for submitting offers ended on June 25. The Contracting Board agreed to declare the tender void after verifying that no offer was received.
With this scenario, the Castellón Port Authority has carried out a review of the project with an increase of around 60% of the initial budget, for which it will put it out to tender for 25.7 million euros (VAT included).
This is a clear example of what is already happening. It is only a matter of time before so many others are visible.
I believe that there will be no shortage in Spain. What there is is a growing social alarm, driven by a huge number of media that, given their lack of advertising revenue, seek to highlight and capture those who are not yet aware that the world is changing and capture them as an audience. They are the same ones who are dying and seeing their audience levels fall month after month, and they try to take advantage of the ignorance of many in favor of themselves. They lie and do not tell the truth for partisan purposes. All this goes by neighborhoods.
In addition, all those who speak that we must go back to 2019. In my opinion they are not aware of what they say, or they did not suffer enough from the previous crises. Since we continue dragging the enormous crisis of 2008/09, aggravated by the relapse of 2012/13 and by the continuous kicking forward by the governments of the world, of not wanting to face what the earth demands … change!
We need to restructure and rearrange everything. Reformulate how we want the world of the future, which is already today. How we want the world of our children and, above all, how we want to face the climate change that we are suffering. Inflation, stagflation, hyperinflation, etc … are important, of course. But we must draw a path and a goal, all of them, and not get out of it. Without unity, empathy and will on the part of all, we will not achieve it.