Central Banks aka The Federal Reserve have been tardy in setting interest rates. Inflation and stagflation could become embedded into a global economy. Will it become a nasty hidden tax?

 

This chart might appear confusing, but what it shows is the oil price (WTI) green line at $103 (parabolic), the blue line is the Australian cash rate at 0.10%, the light green line is the US interest rate at. 0.50% and the red line is the AUD/USD supported by bids at 0.75 cents.    The below charts shoe US food inflation since 2010, which as you can see on the chart in 2022 is now parabolic, below that chart is the DXY (U.S. Dollar), that for the most part should be higher.

I would argue that the U.S Dollar is far too low to combat inflation at a cash rate that is 0.50%, to which it has barely moved on a 5 year average since 2015, staying mainly under $1.00   Which in turn has kept risk currencies, such as the Australia dollar bid, when the Australian interest rate is lower than the U.S at 0.10%.   It does seem that Central Banks globally are not tuning into a inflation and potentially a hyper inflation problem brewing, particularly with energy, oil and food.  Say, rates ended up being over 2% in the short term, we could see oil and food inflation drop dramatically.  It is the rising costs of production that are driving prices up and with supply chains still crimped after the 2020/2021 global pandemic, the ongoing war in Ukraine is also going to drive prices up.   

The longer these Central Banks wait or slow in rate increases, the more painful it will be for the everyday consumer. 

"Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”  Milton Friedman